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Placing a tax on business services in California has the potential to raise an additional $122.6 billion annually for state and local governments, according to a recent Board of Equalization study. A services tax could become a reality if Senate Bill 8 is approved by the Legislature and signed by Gov. Jerry Brown.

Although SB8 has yet to be considered by a policy committee, legislators are keen to see increased funding and stabilized revenue for state programs, while leaders in California’s $1.45 trillion services industry are panicking and threatening to leave the state. The BOE is concerned about the major bureaucratic expansion needed to administer the new tax.

The bill, dubbed the “Upward Mobility Act” by its author Sen. Bob Hertzberg, D-Van Nuys, is actually intended to increase tax revenue by only $10 billion. It proposes to dispense $3 billion of that to K-14 education, $3 billion to local governments, $2 billion to higher education and $2 billion to earned income tax credits for low-income residents.

In addition, the bill states that it “would enhance the state’s business climate, create jobs, and incentivize entrepreneurship by evaluating the current corporate income tax to determine whether it is meeting its intended purpose while at the same time linking changes to a more reasonable minimum wage.”

The bill exempts health care and education services as well as businesses with less than $100,000 in annual gross sales. The services tax would not replace the state sales tax, which brought in $48 billion in 2013-14 — equivalent to $1,300 for each California resident, according to the Legislative Analyst’s Office.

According to the bill, a services tax is needed to keep up with the changing nature of the California economy, and provide a better balance and less volatility in government revenue:

“Over the past 60 years, California has moved from an agriculture- and manufacturing-based economy to a services-based economy,” the bill said. “As a result, state tax revenues have become less reliant on revenues derived from the Sales and Use Tax on goods and more reliant on revenues derived from the Personal Income Tax.

“In 1950, the Sales and Use Tax comprised 61 percent of all state revenues; today, it accounts for about 30 percent. The Personal Income Tax accounted for 12 percent of total state revenues in 1950; today, it accounts for more than 60 percent.

“Moreover, California’s General Fund tax collections are heavily dependent on the earnings of its top earners. This has led to dramatic revenue swings year over year … [which] have led to the suffering of California’s residents.

“Essential services, such as health care and child care for low-income families, were cut at a time when they were needed most. In addition, the state cut billions of dollars to education, including adult vocational and literacy education, which could have helped low-income families recover from the recession.

“Relying on the wealthiest taxpayers to support California’s needs is outdated and dangerous fiscal policy. Not only does it increase the uncertainty of tax collections, but there is evidence that California’s high tax rates may be driving high income earners out of the state, which only deepens revenue shortfalls.”

Business services comprise 80 percent of the economy today, according to the bill. Exempting them creates inequities; for example, taxing the purchase of TurboTax software but not taxing H&R Block.

The bill seeks to make three changes to the tax code:

• Broaden the tax base by imposing a sales tax on services to increase revenues.
• Enhance the state’s business climate and incentivize entrepreneurship and business creation by evaluating the corporate income tax to determine whether it is meeting its intended purposes, including whether it is borne equitably among California’s businesses and what impact it has on the business climate, while at the same time linking changes to a more reasonable minimum wage.
• Examine the impacts of lowering and simplifying the personal income tax while maintaining progressivity. The measure’s goal is to reduce personal income tax rates for low-and middle-class-income households so that families earning $100,000 pay only $1,000. The revenue reductions would phase in when new revenues replace revisions to the personal income tax and corporate tax.

The Board of Equalization was asked by the Senate Governance and Finance Committee, which Hertzberg chairs, to analyze the services tax. On April 14, BOE staff issued its $122.6 billion revenue estimate along with a fact sheet listing numerous concerns about the implementation of the tax. Those concerns include:

• The BOE’s operations will be significantly impacted. The BOE currently has over 1 million registered taxpayers who report sales tax on tangible personal property sales. Extending a broad-based tax on service providers’ sales could add millions of additional taxpayers — the largest expansion of BOE’s scope and role since sales and use tax was first established in the 1930s.
• Extensive outreach and taxpayer educational efforts would be necessary. A broad-based tax on services would require mass notification, educational efforts and outreach services in a short period of time.
• Adequate lead time is critical. [A] 12-month lead time would NOT provide sufficient time to prepare for and administer a broad-based tax.
• Definitions of taxable and nontaxable services must be clear and comprehensive.
• A tax on certain services provided to or by interstate businesses raises uncertainties in determining the portion of the service performed in California, and any proposed legislation should sufficiently address this issue. For example, what portion of the charges for a national advertising campaign would be subject to a proposed tax in California?
• Different tax rate on sales of services and sales of goods adds complexity.
• The financial impact on service providers who would be required to register and report sales tax cannot be minimized. It would be necessary for service providers to maintain point-of-sale systems, or similar software, to account for and properly remit sales tax. The cost for such systems would cause significant hardship in many cases.
• As significant consumers of services, all levels of government would be impacted by a tax on services.
• Potential for referendum or repeal. If a tax on services is suspended or ultimately repealed, the state may not recover costs associated with the expansion. Four states — Florida, Massachusetts, Maryland and Michigan — all enacted and then later repealed a tax on services.
• “A sales tax on services would dramatically grow the state’s multi-billion dollar underground economy, requiring greater investments of time and resources to combat it by the BOE and other state and local government agencies.”

At the BOE’s April 28 meeting, several board members expanded on those concerns. Board member Diane Harkey said she’s concerned about trying to enforce the tax on small businesses. “I for one don’t want the BOE to once again be hunting down all the little guys to try to eke a few dollars out of them,” Harkey said.

“So I’m not real pleased with this. I think it’s going down a path that, unless we totally overhaul all taxes in the state, this probably doesn’t work. And I think we’ll build up a ton of opposition. I do appreciate your study. But in reality, the take would not be that [much] in real terms. I think we’d be gathering sufficiently less.”

Business leaders have expressed their concerns to Harkey.

“They were very panicked about this bill,” she said. “[One] industry representative said, ‘We’re planning expansion here and … we’re not going to go forward if this is going to happen. People watch California. And, you know, this academic discussion we’re having could very dramatically affect capital investment.”

Board member George Runner is concerned that the BOE might have to quadruple its staffing to 20,000 employees to deal with an additional 2.5 million businesses paying the services tax. But, he said, the BOE analysis is a good starting point for a discussion of the impacts of the tax.

“I look at this as just base information,” said Runner. “And then it’s going to be up to the legislators down the street to figure out how to narrow the bill. I think, as Sen. Hertzberg has said, he’s got some thoughts in his head in regards to what [services] he’s going to include and exclude.

“And I think the next discussion that’s going to take place is who’s in and who’s out. I’ve heard from lots of folks in the industries in terms of who are concerned about it, feeling like this gives them something, some real meat for them to deal with it.”

Board member Jerome Horton said he hopes legislators will not focus on taxes simply as revenue generators.

“If you look at what I believe the initial purpose that the founding fathers had when it came to taxation, was to modify the behavior,” he said. “If the behavior that we want in California is to create jobs, if the behavior that we want is to address poverty and those things in our society, I believe we can find a consensus in order to be able to fund that.

“Part of the challenge, I think, is there’s folks who fundamentally believe that the money isn’t spent right, and the return on the investment isn’t there.”

Those folks include the California Taxpayers Association, whose fiscal policy director, Therese Twomey, has dissected the idea of taxing services.

“In addition to problems related to competitive disadvantages, job loss and tax administration, taxes on services raise a host of other concerns, including increasing costs for government, disproportionately impacting small businesses, tax pyramiding, etc.,” she said in a CalTax newsletter.

Hertzberg responded to the BOE analysis in a press release.

“This landmark study confirms that California’s economy has undergone a revolution,” he said. “Eighty percent of California’s economy is now providing services, not goods, and most of these services are untaxed, making California more dependent on personal income taxes, which fluctuate year to year. It is that dependence on an unstable revenue source — not high taxes — that threatens our state’s economy.”

He noted that the BOE estimate overstates the revenue expected from his bill because the estimate includes education and health-care services, which the bill excludes. “Details about SB8 will continue to unfold during the year; its first policy hearing has not yet been set,” he said.

That’s the warning from the California Chamber of Commerce in a press release headlined “CalChamber, State Agency Question Exposing Employers to Public Shame​​​​​​​​​.” Assemblywoman Diane Harkey, R-Dana Point, said the bill’s effect would be akin to pillorying business owners in the stocks.

Assembly Bill 1792 by Assemblyman Jimmy Gomez, D-Los Angeles, would require the California Department of Finance to issue and post online an annual report listing businesses with 25 or more employees enrolled in Medi-Cal, CalFresh or CalWORKS. The report would also calculate the cost to the state of providing benefits for those companies’ employees.

More than half the state on the dole

Twenty-one million Californians receive state public assistance, according to the committee’s legislative analysis of the bill, citing Employment Development Department data. That equates to 55 percent of California’s 38 million residents on the dole.

AB1792 passed the Assembly along party lines on May 28, and the Senate Health Committee on June 25. It’s scheduled to be considered by the Senate Appropriations Committee on Monday.

Gomez argued on the Assembly floor that his bill merely seeks to provide data in order to better inform legislative decision-making.

“Last year we had a major debate when it came to the impact certain business models have on our health care safety net and to our state budget,” he said. “But one of the criticisms I encountered was that our arguments were not based on real data. And the debate often relied too heavily on anecdotal evidence or projections of evidence from other states.

“As public policy makers and as legislators, we have an opportunity to make decisions that impact our economy, our budget and our residents. But we need to base those discussions and decisions not only on personal testimonies or arguments from proponents or opponents of a particular bill, but on data and facts from California. I believe this bill does just that. And it does it in a way that doesn’t raise costs on employers or additional burdens on them.”

Williams: Businesses profit from public assistance

Assemblyman Das Williams, D-Carpinteria, was the only Democrat to speak in favor of the bill. He said it will identify the businesses profiting from the state’s public assistance programs.

“If a business is making profits because they’re pushing benefits onto public assistance and onto the government, it’s something that taxpayers should at least have the right to know who they are indirectly subsidizing with their tax dollars,” he said.

“This is something that we need to be very consistent about. This Legislature has taken a stand against public bodies like community colleges pushing benefits onto the public dole. We should be opposed to businesses doing it as well. At least we should have the right to see when businesses are purposefully reducing hours or pushing benefits onto taxpayers.”

Republican opposition

Several Republicans spoke against the bill, arguing that it would place another burden on the state’s beleaguered businesses.

“These public stockades, so to speak, where we just pillory everybody and make an example of them do lead to more litigation, do lead to more problems,” said Harkey. “And quite honestly, make us very, very more unbusiness-friendly than we are. The governor is trying to recruit business to the state of California. This is no time to put people in a stockade or businesses in a stockade for some kind of exhibition purposes or litigation.

“I … ask for everyone to, please, let’s try to just chill a little bit on our business community, because we cannot afford to be losing small businesses or large businesses out of the state of California. L.A. just had a huge hit between Boeing and Toyota. And there’s more going. These are thousands of jobs. So I respectfully ask for a no vote on anything more that penalizes or makes businesses in the state feel less welcome.”

Shannon Grove, R-Bakersfield, said businesses are already facing an increase in the FICA unemployment insurance tax along with additional costs from the Affordable Care Act.

“I had an employer call my office,” she said. “He has to pay an additional $100,000 a year for this tax on 26 employees. That’s a huge dollar to come up with, especially if you’re a small business. This bill is just another attack on business. And businesses are doing everything they can to try to survive with all of the regulatory issues and all of the new laws that are being passed on them.

“I don’t think we need to keep attacking our employers. They are under so much pressure right now. Why don’t we reward them for providing a job?  Why don’t we give them the opportunity to increase the pay on those jobs without sticking them with additional debt?”

Don Wagner, R-Irvine, argued that because the bill applies only to businesses with at least 25 employees receiving public assistance, it would disincentivize some businesses from hiring more employees.

Health Committee debate

The debate before the Senate Health Committee was along similar lines.

Megan Scott, a research and policy analyst at the UC Berkeley Center for Labor Research and Education, argued in favor of collecting and publishing more information.

“As a researcher, I support any and all efforts to collect good quality, publicly accessible data,” she said. “When it comes to state-funded benefit programs, the state has a compelling interest to collect this data about program participation and cost, and to make the data available for public review and analysis. This will allow policy makers to better understand the trends in the labor market.

“As the economy recovers post-recession, we are seeing higher rates of job growth in low-wage sectors. And this suggests that a growing number of working families are relying on these public benefit programs to help make ends meet. And therefore we have as a state really a compelling interest to learn more about these trends and how to respond.”

About one-quarter of the workforce has a family member receiving public assistance, said Scott. More than half of fast-food workers nationally and more than a third in California have a family member enrolled in federal benefit programs. More than 250,000 Californians, working in companies with more than 500 employees, are enrolled in Medi-Cal.

“Our research would be even further enhanced if we had access to the data that this bill proposes to collect,” she said. “Right now we have to build our models and our estimates by combining a number of publicly available data sets. But the data that would be collected through this bill and issued as a public report would provide really a much better means to understand some of these trends and dynamics that I’ve talked about.”

Jessica Bartholow, legislative advocate for the Western Center on Law and Poverty, argued that the data will support the effort to further increase the minimum wage. Assembly Bill 10 has raised the minimum wage to $9 an hour, with another increase to $10 an hour taking effect in 2016.

“Even with the changes implemented by AB10, a family of three with a full-time worker will land at 90 percent of the federal poverty line,” Bartholow said. “And here in California we know that that does not go far enough. Raising the wage for low-income workers is the single most effective way to move families with earners out of poverty.

“With regards to public benefits, 11 percent of California’s population receives CalFresh and over 10 million Medi-Cal. And California’s poverty rate is getting worse. While the rest of the country is getting better, California is one of just three states that had an increase in childhood poverty in 2012.

“We join the author and the cosponsors in supporting a robust public benefit program that supports everybody who needs it, and provides enough benefit for people to live healthy lives. But we also don’t think that the public benefit programs should be used to bolster low wages and the companies that pay them. We think that the information that comes from this [bill] will help us build towards a day where low-income workers are not below the poverty line.”

Business opposition

Opposition to the bill came from business groups, arguing that it would lead to misleading information, resulting in bad legislation.

“We oppose the bill not only because it drastically oversimplifies the conversation about how to help the working poor, but also because we believe the information it provides – and the narrow scope of the information it provides – is actually misleading and will be misleading to the public and to policy makers, and could be used to defend bad policy proposals in the future,” said Mira Guertin, policy advocate for the California Chamber of Commerce.

“As the Department of Finance points out in its analysis, where it opposes the measure, the bill suggests that no one with a job should ever need public assistance. And that’s simply not true. There are going to be circumstances, because there are myriad circumstances that cause people to need public assistance, many of which are not dependent at all upon the behavior of the employer.

“The bill also implies that every job in the state of California should provide enough to support a family of any size under all circumstances with one working adult. And we don’t believe that’s a fair assertion to make about every business in the state.”

Nicole Rice, policy director for the California Manufacturers and Technology Association, argued that the bill avoids the issue of how to help businesses provide better paying jobs in California.

“Should the discussion be about the names of companies that are on the list, or should it be about how to create middle class jobs?” she asked. “In the manufacturing community we would state that we are the answer to California’s middle class crisis.

“And that there needs to be discussion about how to expand and grow those opportunities so that individuals will have a place to transition from their entry level jobs into these middle-class opportunities. We’re very concerned that the information contained in this report will not give us enough information to have that very important conversation.”

Gomez: Will paint complicated picture

Gomez acknowledged the criticism, but defended the bill as a step in the right direction.

“They are correct,” he said. “When it comes to taxes, our economy, economic development, the use of our public benefit system, it is complex. And this bill will, I believe, present a report that paints a more complicated picture.”

Gomez noted that Massachusetts provides this information, much to its chagrin.

“Most people would never assume that it was the state of Massachusetts that would have more people on the public assistance rolls than some of the brick-and-mortars,” he said. “And at the same time right now there’s brick-and-mortars that get blamed for every single problem we’re having, while others are just as culpable.

“So this bill is going to paint a picture that I believe will have benefits and negatives for different groups and individuals as well as elected officials who make these decisions.”

Few Capitol battles are as heated as the ongoing feud between the trial lawyers and advocates for tort reform. Yet, the two groups have found themselves on the same side of one litigation controversy. Both sides are critical of Orange County Assemblywoman Diane Harkey’s defamation lawsuit against a fellow Republican lawmaker.

In late August, Harkey filed a civil lawsuit against state Sen. Mark Wyland, R-San Diego, in Orange County Superior Court for defamation, presenting her in a false light and intentional infliction of emotional distress. The dispute centers on comments Wyland made at a summer Tea Party event, in which he allegedly referred to a failed investment company managed by Harkey’s husband, Dan. Both Wyland and Harkey are candidates for the Board of Equalization.

Harkey is seeking $10 million in damages after Wyland’s comments caused her to obtain medical treatment for “severe and grievous mental and emotional suffering, fright, anguish, shock, nervousness, and anxiety.” Harkey has refused to respond to CalWatchdog.com’s repeated requests for more information about the claimed medical treatment.

Tort reform advocates “disappointed” by litigation

Harkey’s multi-million dollar claim for emotional suffering has “disappointed” advocates for tort reform.

“Assemblymember Diane Harkey has been a strong ally in the fight against lawsuit abuse,” said Tom Scott, executive director of California Citizens Against Lawsuit Abuse. “We are disappointed that she felt this dispute needed to be settled through litigation, and we hope for a speedy resolution that avoids using scarce resources from our state's already overburdened courts.”

That statement put CALA on the same side as their mortal foes, the consumer attorneys (often called “trial lawyers”). Brian S. Kabateck, president of the Consumer Attorneys of California, offered a strong rebuke of Harkey’s lawsuit and accused the lawmaker of having a hypocritical stance on legal reform.

“Some people dislike the legal system until they need it,” Kabatech told CalWatchDog.com. “Diane Harkey’s recent propulsion from so-called ‘tort reform advocate’ to major litigant, filing a lawsuit some would term facially frivolous, highlights the hypocrisy in her position.”
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He added, “Reminds me of the old saying that, 'People who live in glass houses shouldn’t throw stones.'”

Potential violation of CA GOP rules

Harkey’s attack on Wyland could result in problems of her own. The California Republican Party could potentially rebuke Harkey at its upcoming fall convention. Under the party’s bylaws, delegates are obligated to “first exhaust their administrative remedies” before pursuing litigation against another delegate. Both Harkey and Wyland are delegates to the California Republican Party.

Section 3.09 of the CRP bylaws state:

“(B) All delegates or Committee-chartered organizations with any dispute or conflict subject to this section must first exhaust their administrative remedies pursuant to subsection 3.09(C) and if still unsatisfied, then subject such conflict or disputes to binding arbitration pursuant to subsection 3.09(D). This section constitutes the sole source of legal or equitable relief for all disputes subject to this section.”

Stephen Frank, who served for eight years as the parliamentarian for the California Republican Party, said that the rarely-used provision of the bylaws could be applied to the Harkey lawsuit.

“Technically, yes, two delegates cannot sue each other — even though it had nothing to do with the CRP,” said Frank, who helped write the anti-lawsuit section of the party’s bylaws.

Frank, who emphasized that he has not read the lawsuit and has no position on the dispute, said that Harkey’s potential violation of the party’s rules could result in a censure or even removal as a party delegate. A delegate must file a complaint, which is referred to the party’s Rules Committee. The committee considers whether to take action before referring it to the full convention for a vote.

Messy intra-party feuds

In his long history of Republican political activism, Frank can only recall one instance in which a CRP delegate has been rebuked for filing a lawsuit against a fellow party member. The provision was originally drafted to address a feud between rival young Republican clubs.

“It was messy and made the party look bad,” Frank said of the dispute. “The intent [of the provision] was to stop those suits from going public, and instead try to handle disputes internally.”

Already, the consumer attorneys have seized on the lawsuit to impugn the entire tort reform movement. The movement is a favorite talking point for Republican candidates.

“Using her office to routinely slam lawyers who represent truly injured and powerless victims, all the while planning to file her own lawsuit, makes a mockery of the entire tort reform movement,” Kabateck said.

Harkey and Wyland are both running for the Orange County/San Diego County/Inland Empire Board of Equalization seat now held by Michelle Steel that is a good bet to remain in GOP hands. It has a slight Republican registration edge. Also expected to run are three Orange County pols: Democratic state Sen. Lou Correa and former GOP state lawmakers Tom Harman and Van Tran.

But the key to understanding Harkey's suit isn't her pending political fight with Wyland. It's her thin-skinnedness, if that's a word. Let's look at some of her dealings with the media that reflect her perception of a world in which she is an unjustly put-upon heroine:

'Totally unfair and extremely biased'

This is from O.C. Register political reporter Martin Wisckol's blog of Oct. 19, 2007:…

“Diane Harkey left me a phone message today (that was Oct. 17), saying the blog was singling her out and posting unflattering photos. You can see the two photos I’ve used of her here.

“I’m not that unphotogenic,” she said. “I think it’s totally unfair and extremely biased.”

Then came Martin's story of March 17, 2009, which showed Harkey had been misleading and inconsistent in describing her involvement with her husband's troubled financial firm.

Victim of 'slander'? Or trapped in denial?

At that time, I interviewed Harkey, who at that point represented a big chunk of northwest San Diego County, for a Union-Tribune editorial that was published March 22, 2009. Here's part of the editorial; the image is from an extensive website on the Harkey scandal:

 “… Her husband, Dan Harkey, runs Point Center Financial, an Aliso Viejo company that lends investors' money to land developers. It is the target of a Securities and Exchange Commission probe. It is also facing a lawsuit from 53 investors who say Dan Harkey used their money for dubious loans – and to fund his wife's rapid rise in Orange County politics. Campaign disclosure firms show Diane Harkey has spent $2.1 million in personal funds since 2004.

“However, the suit presents no evidence for the alleged diversion of money. An aide to Diane Harkey told The Orange County Register last month that the campaign funds came entirely from the wealth she had accumulated in a 30-year banking career. Both Harkeys said she had never worked for Point Center. …

“But a follow-up Register report said Diane Harkey had been listed as a Point Center official in state documents and in campaign disclosure forms for two political donations to other GOP candidates. Harkey's own 'statement of economic interests' said she received more than $100,000 in annual income from a rental property that happens to be Point Center's headquarters. She also appears to be backing away from her claim that she didn't use her husband's money for political purposes.

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“Plainly, this matter deserves coverage. Yet in a phone interview, Harkey told us our questions amounted to 'slander'; that news accounts of the mess were all 'libel' written by journalists determined to 'massacre' her family; and that she was the victim of a sexist double-standard.

“Given the holes in her initial story, this is a startling approach for Harkey to take. … If she wants to clear her name, step one is to get out of the denial stage of her grief.”

Routine budget questions an 'unbelievable grilling'

I wrote more about Harkey in a March 23, 2009, blog item for the Union-Tribune:

“How is it possible Harkey managed to get elected to any job, much less the Assembly? She has no conception of her role; of the proper role of the media; or of her responsibilities to the media. I have another example to offer.

“Last fall, the U-T editorial board met with nearly two dozen candidates for state Assembly and Senate seats. I asked every last one how they would balance the state budget and was ready with follow-up questions seeking specifics if they offered vague answers or it's-that-simple Ross Perot-style sophistry. Guess who thought that amounted to unfair treatment? You got it.

“Last week, after I had an unproductive phone interview with her, I wrote Harkey to say I needed to get fuller answers so I could understand her position. Part of her response was to harken back to the candidate interviews: '… you have a personal bias in my case. I recall the unbelievable grilling you gave me when I interviewed with your editorial board.'

“I asked the same questions of everyone, with the same follow-ups to all the evaders. To Diane Harkey, it was an 'unbelievable grilling.'

“Here's the kicker: The U-T ended up endorsing her, and I wrote the editorial! Despite my 'bias'!

“South O.C. and Oceanside, you have my condolences. There doesn't seem to be much of a learning curve on display with your Assembly rep.”

Incumbent Steel probably regrets Harkey endorsement

Four years later, that still seems true. It's just strange for Harkey to think her scandal isn't fair game for her political rivals; that the amazingly personal details in her lawsuit against Wyland will play well; and not to realize that her lawsuit has put a vast spotlight on Wyland's remarks that might otherwise have been largely ignored.

Michelle Steel, the incumbent, also may be regretting endorsing Harkey on Sept. 5.

Assemblywoman Diane Harkey, R-Dana Point, is suing state Sen. Mark Wyland, R- San Diego, for defamation, presenting her in a false light and intentional infliction of emotional distress, according to court records first obtained by SDRostra.com. Harkey says that Wyland’s statements at a summer Tea Party event exposed her to “hatred, contempt, ridicule” and even caused her to seek “medical treatment on a number of occasions.”

Wyland allegedly alluded to Harkey’s ongoing financial and legal troubles surrounding the bankruptcy of Point Center Financial Inc., a company that is controlled by her husband, Dan. The Orange County assemblywoman has reported the company on her financial disclosure forms filed with the state’s Fair Political Practices Commission.

Disgruntled investors say that Dan Harkey made ill-advised loans and pocketed additional fees from the company. In July, a jury “found Dan Harkey and his company liable for $9 million to investors,” according to the Los Angeles Times.

Statements in question

The week of the jury verdict, Wyland allegedly made the following statements that were apparently so hateful they forced Harkey to seek medical treatment:

“Unfortunately, there has been a lawsuit brought by a lot of investors of modest means against her and her husband for defrauding them. … There was decision that those investors were defrauded and there is a judgment.”

While Harkey has filed a $10 million lawsuit against Wyland for allegedly misstating facts, her own complaint gets some simple facts wrong. Harkey’s complaint refers to “the public office for which she seeking as a Member of the Franchise Tax Board.” That’s factually incorrect. Not only is Harkey seeking a position on the state Board of Equalization, but members of the Franchise Tax Board are not elected at all.

Harkey: Critic of “feeding trial lawyers”

As a member of the Legislature, Harkey has repeatedly criticized lawsuit abuse. Earlier this month, Harkey opposed SB131, a measure to allow victims of sexual abuse to bring civil lawsuits against private organizations that harbored abusers, which the Legislature just passed.

“It ought not to be just about reopening wounds and feeding trial attorneys,” Harkey said in a floor speech against the bill.

Harkey, according to her legislative website, has also introduced legislation that “prevents lawsuit abuse and protects our state and local municipalities.” She has also criticized the state’s payment of interest on legal settlements because it “often times merely serves to fund the next lawsuit against small businesses and California employers.”

Possible SLAPP lawsuit?

Harkey’s defamation suit could be considered an example of a “Strategic Lawsuit Against Public Participation,” or SLAPP case. According to the California Anti-SLAPP Project, a public interest law firm and policy organization that fights such cases, a SLAPP case is “legally meritless, they can effectively achieve their principal purpose: to chill public debate on specific issues.”

Wyland’s reference to Harkey’s lawsuit could be considered to be a valid criticism that is relevant to her campaign for the state’s tax board. In the past, the business dealing of the Harkey family have been raised in her political campaigns.

In February 2013, the Orange County Register reported that a group of angry investors had demanded that Harkey resign from office and abandon her candidacy for the state Board of Equalization. “Investors have lost 96-cents on the dollar invested yet you and your husband continue to live in a guard gated, ocean front home, drive a Rolls Royce, own a stable of horses and otherwise live an affluent lifestyle paid for by investors,” a letter from the investors said.

In 2009, the Los Angeles Times reported, “Harkey accepted $16,600 in political contributions from real estate developers who had received loans from her husband’s business, now under investigation by the Securities and Exchange Commission.”

(Correction: This article originally said the lawsuit was for $5 million. It really was for $10 million, as the text now shows.)