MOORLACH UPDATE — House of Origin Deadline — May 23, 2019

It is time to get bills out of the houses of origin. Consequently, I’ve been on the Senate Floor everyday this week.

On Monday I presented three of my bills, which all passed using the unanimous roll call opportunity by the presiding officer of the day’s Session. They were SB 359 (see https://moorlach.cssrc.us/content/senate-bill-359-municipal-referendum-petitions), SB 535 (see https://moorlach.cssrc.us/content/senate-bill-535-counting-greenhouse-gas-emissions-fires-scoping-plan), and SB 754 (see https://moorlach.cssrc.us/content/senate-bill-754-hoa-elections-acclamation and MOORLACH UPDATE — SB 754 — March 16, 2019 ).

On Tuesday I had two more bills approved by unanimous roll call, SB 496 (see https://moorlach.cssrc.us/content/senate-bill-496-protections-against-financial-abuse-elder-and-dependent-adults and MOORLACH UPDATE — Senate Bills 511, 584, 598, 496 and 640 — April 15, 2019 and MOORLACH UPDATE — SB 496 and SB 598 — March 6, 2019) and SB 184 (see https://moorlach.cssrc.us/content/senate-bill-184-judicial-fairness-act-2019).

I hope to have the same success with SB 598 today (see https://moorlach.cssrc.us/content/senate-bill-598-open-financial-statements-act and MOORLACH UPDATE — SB 598 Moves On — May 16, 2019 and MOORLACH UPDATE — SB 496 and SB 598 — March 6, 2019 ).

Bloomberg Environment picked up the successful vote on SB 535 in the first piece below.

One of the bills we debated on the Senate Floor Wednesday afternoon was SB 206 (Skinner). I was the last Senator to participate in the discussion and I asked a couple of questions about the potential repercussions of the proposal before us. The exchange converted me from a "no" vote to an abstention, as I do not want to jeopardize the athletic careers of California’s college students. The LA Times provides the details in the second piece below.

Wednesday morning we also addressed one of the more controversial bills of 2019, SB 276. I believe that inserting state bureaucrats in the process of obtaining medical exemptions is an invasion of the most important confidential relationship one has, one between you and your doctor.

One of the laments I have about Orange County is that someone was murdered on one of our beaches one evening. Consequently, all of our beaches are now closed at 10 p.m. You barely have darkness and the fire ring is going, everyone is comfortable and a Jeep drives up and tells you to shut it down. What? Punish everyone for one person’s actions? What?

Adding another level of bureaucracy rather than prosecuting perceived abuses is the wrong answer on these and many more levels, so I voted in opposition.

The Associated Press has an incredible photographer in Rich Pedroncelli, who captured me during my Floor speech in opposition of Sen. Pan’s bill, and it is the third piece below.

California Senate Passes Bill to Calculate Wildfire Emissions

By Emily C. Dooley

* California has seen intensifying wildfire seasons in recent years
* State air board would be required to calculate the emissions from wildfires under Senate-passed measure

California officials would have to officially report the amount of emissions spewed by wildfires in the state under a bill that passed unanimously in the state Senate May 20 and now heads to the Assembly.

Sponsored by Sen. John Moorlach (R), SB 535 would require the California Air Resources Board to calculate for the Legislature by May 2020 wildfire and forest fire emissions, including greenhouse gases, short-lived climate pollutants, and six criteria contaminants regulated by federal officials such as particulate matter and ground-level ozone.

In an analysis, Moorlach said the bill is an attempt to “ensure that when there are human-related catastrophic fires, we are measuring the large scale emissions, recognizing them in our high-level planning documents, and appropriately mitigating wildfires and their impact on California in the future.”

A CARB spokeswoman said the agency doesn’t comment on pending legislation.

The agency, tasked with reducing air pollution and fighting climate change, does estimate annual wildfire emissions using a U.S. Forest Service model, state re data and input from other federal agencies.

According to those estimates, fires in 2017 burned 1.34 million acres in California and released 36.7 million metric tons of carbon dioxide.

Those numbers have caveats, and estimates can vary widely. The state has said the estimates have an uncertainty factor of between 50 and 200 percent.

One reason is the model relies on outdated information, such as vegetation in an area and number of buildings present. It may also not account for previous fires, drought, or disease.

Last year’s Camp Fire was California’s deadliest and most destructive fire season, but federal and state officials disagreed on the emissions. The U.S. Forest Service estimated the carbon dioxide emissions to be 4.3 million metric tons, while CARB’s preliminary estimates hit 3.63 million metric tons.

California college athletes could sign endorsement deals under bill OKd by state Senate

By MELODY GUTIERREZ

https://www.latimes.com/politics/la-pol-ca-ncaa-college-sports-paying-athletes-20190522-story.html

College athletes in California would be able to sign with agents and profit from endorsement deals under a bill that cleared the state Senate on Wednesday, prompting a potential showdown with the National Collegiate Athletic Assn., which bars such compensation.

Senate Bill 206 by state Sen. Nancy Skinner (D-Berkeley) passed the Senate 31-4 and now heads to the Assembly for consideration in the coming months.

Skinner said universities and their coaches are raking in millions of dollars and the NCAA nets billions a year from collegiate sports — while athletes are barred from accepting any compensation beyond tuition, school fees, room and board and small cost-of-living stipends.

Skinner said her bill would treat college athletes the same as those who compete in the Olympics and give collegiate players an opportunity to “earn income from their talent” while retaining their amateur status.

In recent years, the NCAA has been the target of lawsuits, legislation and scrutiny stemming from the financial arrangement they have with athletes and the relatively small amount of money that is fed back into sports scholarships.

“Olympic athletes are also considered amateur, so this does not professionalize our college athletics and may in fact result in encouraging some of our students to stay in school rather than the motivation to go pro early because it’s the only way to earn an income,” Skinner said.

SB 206 would allow student athletes at public and private universities and colleges to earn money from the use of their name, image or likeness in endorsement deals starting in 2023. The bill would not allow the schools to directly pay athletes.

Skinner said the issue is particularly pressing for women athletes, who have fewer professional sports opportunities after college and typically have just one chance to profit from their talent. The bill would bar schools from offering sponsorship deals to high school students as a recruitment tool.

“These men and women put butts in seats of arenas and stadiums all across the country and the universities make millions of dollars selling their jerseys and other paraphernalia … but these athletes benefit not one dime,” state Sen. Steven Bradford (D-Gardena) said. “This is a civil rights issue. This is a fairness issue.”

But the bill has raised questions about how the NCAA would treat California collegiate sports programs if their teams were to violate the body’s rules should SB 206 become law. That has prompted concerns from the California State University system, University of California, USC and Stanford University, which are all opposed to the bill.

Sen. John Moorlach (R-Costa Mesa) said the bill could result in California schools being excluded from the NCAA, which he said would hurt the prospects of athletes at those schools even more.

“We have a chess game going on,” Moorlach said. “What does this do for the students we are trying to assist?”

Tougher vaccine rules move forward in California

By DON THOMPSON

https://www.apnews.com/d5b0d1c5520447c38e11521a9e9f3310/gallery/media:50297e783d964c9ba2c3fbd2c089549f

State Sen. John Moorlach, R-Costa Mesa, calls on lawmakers to reject a measure to toughen the rules for vaccination exemptions Wednesday, May 22, 2019, in Sacramento, Calif. The Senate approved the bill, SB 276, by state Sen. Richard Pan, D-Sacramento, that gives state public health officials instead of local doctors the power to decide which children can skip their shots before attending school. The bill now goes to the Assembly. (AP Photo/Rich Pedroncelli)

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MOORLACH UPDATE — Big Gas and Electric Costs — May 21, 2019

Senate Bill 1074 (2018) is back in the news. The LA Times provided a letter to the editor from none other than Ronald Stein.

Ron Stein has been the main proponent of SB 1074. Here’s a chronology of this 2018 bill’s history:

* MOORLACH UPDATE — SB 1297 – COO — April 19, 2018

* MOORLACH UPDATE — Worked So Hard — May 19, 2018

* MOORLACH UPDATE — Conference Committee Cram Down — June 8, 2018

* MOORLACH UPDATE — Homelessness Discussion — February 4, 2019

* MOORLACH UPDATE — High Gas Prices — February 25, 2019

* MOORLACH UPDATE — Capitol Dances — May 1, 2019

With Ron’s firsthand knowledge of this bill, he hits the nail on the head in the first piece below.

The second piece, from the California Globe, provides a drive down memory lane with SB 1463 from 2016 and the similar SB 1463 from 2018 (see MOORLACH UPDATE — SB 1463 And The Facts — November 19, 2018 and MOORLACH UPDATE — SB 1463 Epilogue — October 4, 2018).

It also discusses this year’s SB 584, my effort to utilize Rule 20A credits to assist in the undergrounding of electric lines (see MOORLACH UPDATE — SB 584 Goes To Natural Resources — April 21, 2019). After this bill passed through two committees, without opposition, it was killed in the Senate Appropriations Committee by being quietly left on the suspense file. So much for helping the Newsom Administration’s desire to improve fire safety. SB 584 would have helped by expanding existing programs.

image 16

Let drivers see how much environmental rules increase the price of gas

Gas PhotoA Chevron gas station in Malibu advertises self-serve gasoline above $4 per gallon on April 15. (Los Angeles Times)

To the editor: Sure, when California’s strict environmental regulations force a switch to a summer blend, it costs more. When refineries are down for repair, the costs go up as well. (“Why are gas prices so high? California will probe possible ‘market manipulation,’” May 17)

But the big costs we all pay are the excessive taxes and environmental regulation costs lawmakers have placed on fuel. These are costs placed squarely on the backs of our state’s hard-working blue-collar workers who typically commute the farthest.

A bill, SB 1074, was proposed in 2018 by state Sen. John Moorlach (R-Costa Mesa) to have all those costs transparent to the public. But members of the Senate Committee on Business, Professions and Economic Development were adamant that they didn’t want the public to know why we’re paying so much and voted at a hearing to kill SB 1074. I know, because I was there testifying.

It’s time to let consumers see all the taxes and environmental costs they are paying at the pump. When drivers moan, they will certainly know whom to blame.

Ronald Stein, Irvine

The writer is an engineer and the founder of a staffing firm for oil and gas companies.

California Globe Masthead

With Planned Power Outages This Summer, Is California Experimenting in ‘Green New Deal’

Fire 1

PG&E plan to cut power on windy days could leave millions in the dark, without power

By Katy Grimes

Following the devastating California wildfires of 2018, Pacific Gas and Electric recently announced it will cut power this summer to electricity customers on high-wind days to avoid future wildfires.

While PG&E’s transmission lines ignited fires, others say many years with little to no forest management and cleanup of the forest floor and dead timber allowed the forests to ignite, and was the real cause of the devastation.

“After a very meticulous and thorough investigation, CAL FIRE has determined that the Camp Fire was caused by electrical transmission lines owned and operated by Pacific Gas and Electricity (PG&E) located in the Pulga area. The fire started in the early morning hours near the community of Pulga in Butte County,” California fire officials said in a statement, adding that “the tinder dry vegetation and Red Flag conditions consisting of strong winds, low humidity and warm temperatures, promoted this fire and caused extreme rates of spread.”

PG&E has cut power pretty regularly this fall and winter in the northern parts of the state. I own a cabin and land within the El Dorado National Forest, and received 12 text alert notifications of power outages from PG&E since October, most of which lasted days. The utility adjusted my electricity bill accordingly, but everything in the refrigerator and freezer had to be thrown out several times this winter and spring.

Cabin owners can expect this to happen. But imagine if this happens all over Northern California this spring, summer and fall when temperatures hit 100 degrees plus.

California’s Climate Change Policies Driving Decisions

Mismanaged, overcrowded forests provide fuel to historic California wildfires, experts say. The 129 million dead trees throughout California’s forests served as matchsticks and kindling during the most recent fires, and still threaten future fires.

Former Gov. Jerry Brown took the Clinton and Obama-era regulations — which added excessive layers of bureaucracy that blocked proper forest management and increased environmentalist litigation and costs– a step further when he vetoed a bipartisan wildfire management bill in 2016, authored by Sen. John Moorlach. While this bill may not have stopped all of the wildfires, it would have greatly helped some communities.

It is estimated that “for every 2 to 3 days these wildfires burn, GHG emissions are roughly equal to the annual emissions from every car in the entire state of California,” USA Today/Reno Gazette reported in 2017. What is disturbing is when California burns, the state’s clean air achievements also go up in smoke.

The blazes spew enough carbon into the air to render the state’s climate and clean air policies moot. Not addressing the causes of the state’s historic wildfires makes any policy discussion about the need to reduce greenhouse gases pointless.

Turning off the Power

With the threat to cut power this summer, many are asking what about power to hospitals, health clinics, schools, businesses, government buildings and offices, public transit, street lights, sports arenas and stadiums, convention centers, hotels… the list is long.

Most do not realize just how much our country and state depend on electricity – particularly now that the state is pushing electric cars on everyone, amidst the threat to ban internal combustion engine cars. How will the Tesla and Volt drivers charge their electric cars with no power? Or will there be a two-tiered system determining whose power is cut?

Plunging millions of residents into darkness isn’t a good long term solution. But the serious question is “why?”

While the plan may potentially solve one problem for PG&E, it obviously creates another with residents, businesses, hospitals and government facing blackouts. The last California Governor who authorized rolling blackouts was recalled by the voters.

After he signed off on $42 billion in vastly overvalued energy contracts in 2001, Gov. Gray Davis instituted random, rolling blackouts that created chaos and severe economic damage in many parts of the state. “And it was Davis’s state energy traders who arranged for the state to pay prices for energy that were well above market,” Human Events reported in 2003.

Attempts to Address Wildfire Issues and Causes

Following the veto of his 2016 wildfire management bill, in 2018, Sen. John Moorlach (R-Costa Mesa) proposed SB 1463 which would have dedicated 25 percent of state cap-and-trade funds to wildfire mitigation efforts. That bill was killed. But parts of its concept were incorporated into SB 901, which did pass, and uses $200 million a year of cap-and-trade funds over five years for wildfire mitigation – how much per year.

Fire 2“The connection with cap-and-trade is crucial. Cap-and-trade is intended to fund the reduction of greenhouse gases,” Moorlach wrote. “Yet a few days of wildfires may generate a volume of greenhouse gases as great as every vehicle in the state operating for a whole year (in addition to the other toxic emissions and co-pollutants, not counting the immense loss of life and property).”

“Don’t even get me started on the amount of cap-and-trade money that is going to the high-speed rail boondoggle. Perhaps we should divert every last cent to our fire-prone areas and abandon the not-so-bullet train? Especially since it will be electric-powered?”

In 2019, Sen. Moorlach authored Senate Bill 584 which would expedite opportunities for local jurisdictions located in Tier 3 fire-threat areas to underground current overhead electrical infrastructure for wildfire mitigation. The bill will also establish a Wildfire Mitigation Oversight Board to develop and implement policies that reduce the looming threat of more wildfires.

Moorlach says overhead utility lines and equipment have caused many devastating blazes, with the equipment of California’s three largest utilities being responsible for igniting over 2,000 fires between 2014 and 2017.

“The current utility company solutions of turning off the power and managing vegetation have been largely ineffective,” Moorlach said. “Utility companies propose ‘hardening’ the overhead systems as a means of fire mitigation, but Southern California Edison noted in its Grid Safety and Resilience Program that hardening overhead systems is only 60% as effective as putting overhead systems underground.”

Lastly, there is no discussion of how utilities can keep expensive and unreliable renewable energy contracts for wind and solar when they have to constantly cut the reliable power that generates electricity and is needed as backup for wind and solar. The electric power supply is primarily coal, the second-largest energy source for U.S. electricity generation in 2018. Perhaps this is something the bankruptcy judge in the PG&E case should address.

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MOORLACH UPDATE — University of California Fiscal Realities — May 17, 2019

The University of California underwent another employee strike yesterday, continuing a theme of financially distressed educational systems facing employee angst while not fully appreciating or understanding that their employers’ cupboards are bare (also see MOORLACH UPDATE — UC, CCC and CSU — May 11, 2018 ).

Yesterday, I issued an ICYMI providing the twelve largest June 30, 2018 unrestricted net deficits out of California’s 944 school districts. And several of these districts also endured employee strikes in recent weeks.

The Governor and the Legislature need to prepare for funding demands if public employee union bargaining unit demands are actually agreed upon. Something is going to break. In the meantime, I submitted a piece with some suggestions for those representing University of California employees in the Fox & Hounds piece below.

25th Anniversary Look Back

On May 18, 1994, I had the opportunity to speak to the Orange County Society of the Institute of Certified Financial Planners (ICFP) at their quarterly meeting. I prepared a handout providing an outline of what my research and audits had found. I used words that started with the letter “D:” Debt; Derivatives; Diversity; Devaluation; Duration; Dysfunctional; Dangerous; Defense; Depart; Divorce; Disingenuous; Deceptive; Disclosure; Denial; Deflection; Debate; Dealers; Detect; and Differences.

The presentation was eerily precise. Allow me to provide a few of the bullet points.

Derivatives — 25% of the portfolio; 75% are inverse floaters; no secondary market.

Diversity — In certain cases, the portfolio owned 100% of an issuance.

Devaluation — Mark to market.

Duration — Average life of derivatives and FNMAs is four years.

Dysfunctional — Money market fund (should have a weighted average maturity of between 60 and 90 days and) SEC disallows using inverse floaters.

Dangerous — A major bull market bet at beginning of a bear market.

Defense — Minimal hedging for interest rate increases.

Depart — Top of the bond market was October 15, 1993. The smart money has gotten out of this approach.

Divorce — You don’t marry an investment, you manage it.

Disingenuous — “Risk free investments.” “Risks are prudent.” “Hold to maturity.”

Disclosure — First to use California freed of information act to obtain copies of the Pool.

Denial — Government bureaucrats are upset with my candidacy. Don’t comprehend Finance 101: for higher return you must take higher risks.

Differences — (Should) Emphasize financial fundamentals: 1. Safety of principal; 2. Liquidity; 3. Yield. Transparency = accountability = democracy.

To catch up with the rest of the string of Look Backs, go to MOORLACH UPDATE — SB 598 Moves On — May 16, 2019.

Union should face UC’s fiscal realities, work for sensible reforms

John Moorlach

By John MoorlachState Senator representing the 37th Senate District
Thursday, May 16th, 2019

http://www.foxandhoundsdaily.com/2019/05/union-should-face-ucs-fiscal-realities-work-for-sensible-reforms/

California high-school seniors soon will receive their diplomas full of hope and eager to learn more in college. Which is why the last thing they need is a tuition increase.

Yet that’s just what could happen for those about to attend the University of California if the school meets the demands of unions threatening to go out on strike on May 16. It would be the fifth strike the past year, affecting as many as 39,000 service and patient care workers. At their last strike, on April 10, about a third of those workers went on strike.

According to the Sacramento Bee, the strike by locals AFSCME 3299 and UPTE-CWA 9119 would be “to protest the UC’s unilateral decisions to outsource tens of millions of dollars in work that should be performed by their members.” Earlier strikes were because, “Both unions have rejected offers of 3 percent annual increases in wages.”

Employees and union officials should be aware of the perilous state of UC finances due to unfunded pension and retiree medical liabilities. UC’s latest Comprehensive Annual Financial Report, for the fiscal year ending June 30, 2018, tallied an Unrestricted Net Deficit of $18.9 billion and a net Retiree Medical Liability of approximately the same amount.

Put another way, just that $18.9 billion deficit comes to about $473 in liabilities for every person in California, including freshman students and even newborn babies.

Then there’s the housing crisis among students, so severe it even has caused homelessness. Last year I voted for Senate Bill 1227, by state Sen. Nancy Skinner, D-Santa Barbara. It required cities and counties to grant a density bonus for housing projects that contain at least 20 percent of the total units for lower-income students.

And there’s UC President Janet Napolitano’s plan to increase out-of-state tuition by $762 a year, to a total of $42,324. As EdSource reported, UC Regents at their March 14 meeting “revolted” against the plan because it “would push out all but the wealthy.”

But if the unions’ demands are met, such a tuition increase would be inevitable to pay for everything – followed by new tuition hikes on California residents.

Another branch of AFSCME, Council 31 in Illinois, last year lost as the defendant in the Janus decision of the U.S. Supreme Court. The court ruled employees not in the union cannot be forced to pay “agency fees” for collective bargaining.

Local 3299 should be aware that, if it pushes too far in negotiations, its members simply could leave, taking their dues with them, while retaining their jobs in the UC system. Talk about an easy way to increase their take-home pay.

And let’s not forget California student debt averages $22,785 per student.

If these unions really want to help their members and students, there are four things they could do.

First, work with the administration to reform unsustainable pension and retiree medical benefits.

Second, insist on an analysis of the fast growth in administrators, who in 2018 numbered 13,358 in the ranks of the Senior Management Group and Management and Senior Professionals. That’s more than the 10,195 in “faculty–ladder-rank and equivalent,” according to UC data.

Third, ask Gov. Gavin Newsom and the Legislature’s Democratic supermajority for more funding out of the state’s general fund. They control the purse strings and the unions backed them.

Fourth, discourage voters from approving a potential $8 billion bond measure on the 2020 ballot, Senate Bill 14, by state Sen. Steve Glazer, D-Orinda. That additional $500 million per year in general fund debt payments inevitably would lead to future tax increases on students, parents and everybody. This would choke out potential additional funding for the UC system.

Fifth, repeal Senate Bill 574, by then-state Sen. Ricardo Lara, D-Bell Gardens, which makes it more difficult to contract out services. The UC response said, “SB 574 significantly undermines the University’s ability to achieve administrative cost savings that could be directed to the University’s core missions of teaching, research, and public service.” And, I should add, current employees.

In conclusion, union officials might sit in on some UC accounting classes to learn how to read their system’s financial reports. Any new revenues won’t get close to covering the $18.9 billion deficit.

A recession, long overdue, will expose UC’s financial distress. By then, it may be too late. The unions need to be a part of the solution, not the proverbial straw that breaks the camel’s back.

John M. W. Moorlach, R-Costa Mesa, represents the 37th District in the California Senate

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MOORLACH UPDATE — SB 598 Moves On — May 16, 2019

SB 598, The Open Financial Statements Act, was one of my two bills that made it out of the Senate Appropriations Committee today (see MOORLACH UPDATE — SB 496 and SB 598 — March 6, 2019, MOORLACH UPDATE — Open Transparency — March 8, 2019, MOORLACH UPDATE — The Week That Was — April 26, 2019, and MOORLACH UPDATE — Senate Bills 511, 584, 598, 496 and 640 — April 15, 2019).

The other was SB 184 (see https://moorlach.cssrc.us/content/senate-bill-184-judicial-fairness-act-2019).

Regretfully, the Committee decided to hold back two of my other bills, SB 241 and SB 584 (see MOORLACH UPDATE — The Week That Was — April 26, 2019 and MOORLACH UPDATE — SB 584 Goes To Natural Resources — April 21, 2019). We’ll see if we can move them forward early next year.

CalMatters printed my editorial requesting the Senate Appropriations Committee release SB 598 and move it forward for further discussion and legislative approval in the process of getting it to the Governor’s desk. This is an initiative the country is watching and I appreciate the support and encouragement I have received from the State Treasurer’s office.

The second piece, hot off the press from Bloomberg Tax, provides a component of my Senate Floor speech this morning in support of SB 531 (Glazer). I am infuriated by municipal “easy money” schemes. Robert Citron provided one by running a hedge fund that eventually imploded (see the 25th Anniversary Look Back below). A total of 187 different municipalities suffered immense embarrassment when the collateral was called.

Then there came Redevelopment Agencies (RDAs) that provided an incremental property tax revenue source for cities to address blighted areas. If it is a good idea for a segment of the city, then why not the entire city? RDAs imploded in 2011. Two cities in Orange County had to explain embarrassing decisions.

Then came interest rate swaps. A variation of the Citron yield curve play. It usually is a small component of a larger borrowing deal. Using this vehicle, utilizing the short-end of the yield curve, thus lowering interest costs, made the borrower a genius. Until the short-end of the yield curve rose to unprecedented heights, like during the liquidity crisis of 2008, bankrupting Jefferson County, Alabama. This county’s $4 billion financing package was entirely comprised of interest rate swaps and it choked on weekly payments of 8 percent-plus, versus the 1 percent they were accustomed to. Oops.

Now it’s sales tax trade offs that give a host city higher revenues at the cost of reduced sales tax revenues to neighboring purchase destination cities. Get ready for another “oops” in the near future. And, just like it is difficult to explain why you fell for the Citron or RDA or interest rate swap schemes, it will be difficult for a number of cities to explain to its residents why it still has to pay the owner of a warehouse a massive incentive after the income stream spigot has been turned off.

25th Anniversary Look Back

On May 12, 1994, I sent the portfolio, along with specific questions, to the reporters covering my campaign for Orange County Treasurer-Tax Collector
(see MOORLACH UPDATE — Shining a Light — May 8, 2019).

Question number 5 was: “The pool has already paid out more than $300 million in margin calls to cover its outstanding loans. If rates continue to soar, couldn’t the size of the calls top $1 billion?”

Question number 8 was more eerily on point and the predictor of what was to come: “If rates continue to increase, ultimately isn’t it possible that the fund will experience significantly decreasing cash flow on its derivatives, huge margin calls (topping $1 billion), and rising short term borrowing costs, all at the same time that the value of the total portfolio will be decreasing? Isn’t it this possible scenario that keeps most other municipal fund managers from employing such strategies utilizing so much leverage to buy such unpredictable instruments?”

With my three-page letter in hand, Kevin Johnson of the LA Times provided the reaction below on the May 13th, titled “Treasurer Candidate Reiterates Concerns.”

Before you read the piece, which is a concise version of the entire campaign and spells it all out for everyone to see, there are a few comments I would like to share.

1. Kevin Johnson was the husband of fellow LA Times reporter Jody Wilgoren
(see MOORLACH UPDATE — SB 584 Goes To Natural Resources — April 21, 2019 and MOORLACH UPDATE — State of the State Reaction — February 13, 2019). Jody Wilgoren had researched concerns raised by Newport Beach resident Chriss Street and concluded that he was not accurate in his assessment of Newport-Mesa Unified School District’s involvement in the Investment Pool and its willingness to borrow money to increase its participation. So, the skepticism transferred to her husband.

2. I put myself through college. One of the jobs I held was working the evening shift of the Pacific Coast Coin Exchange in Long Beach. While employed there, it moved its offices to Newport Beach and rebranded its name to Monex International. Their building was the only one on Birch Street when I was in college. The area around John Wayne Airport doesn’t seem to have an empty lot now. While working there, I was trained in margin calls. Investors would purchase a bag with $1,000 of silver dimes and quarters (when I was a kid, these coins would receive a sandwich of copper and nickle and pure silver coins would slowly disappear from circulation). The investment would be in the silver, not in the numismatic value of the individual coins.

If you purchased a bag worth $1,200 with a down payment of $400, you would pay interest on the $800 loan (margin). If the value went up to $1,300 in a month, and you sold, then you made $100 on your $400 investment. Making 25 percent in a month is rather satisfying. However, if the value went down to $1,000, Monex would contact you and demand a $200 margin call. It’s equity needed to stay at $800 to properly cover (collateralize) the loan. You could meet the collateral call or you could sell. Taking a $200 loss on a $400 investment is a tough 50 percent hit. I learned about borrowing to invest. If you’re right, you’re a hero. If you’re wrong, you’re a goat.

I fully appreciated collateral and margin calls because I had been marinated in them at Monex. Market swings happen. But, how could I possible expect a non-business reporter to understand this concept. Difficult math calculations are hard to explain, just like defined benefit pension plans, retiree medical liabilities, unfunded actuarial accrued liabilities, and unrestricted net deficits are not easy subjects to fully absorb.

3. I found it incredulous that not one reporter did a piece on the fact that I had to use the California Public Records Act to obtain data. Newspaper publishers to this day demand it. They went silent in 1994.

4. There were 187 outside investors in the Investment Pool. This should warn you,those working in the public sector are not financial wizards. That’s why I have opposed Secure Choice (see MOORLACH UPDATE — Retire Secure Choice — December 19, 2017) and why implementing Single-Payer scares me to death (health care managed by the DMV, are you serious?).

5. Citron did not respond to reporter questions. Consequently, it seemed like my opponent was his Assistant Treasurer Matt Raabe. Although I cannot confirm this assumption, but it is possible Mr. Citron ran again in order to win and then retire, handing the reins over to Mr. Raabe. Knowledge of my impending candidacy may have prevented a clean run in 1994 by Mr. Raabe. The subsequent bankruptcy of Orange County had a devastating impact on Mr. Raabe. He moved up to the Bay Area and literally disappeared into the woodwork.

6. Kevin Johnson simplified things, but they were accurate overall. He could have mentioned that the short end of the yield curve could rise and be higher than the four-year section. We are in a similar situation today (see MOORLACH UPDATE — May Revision 2019-20 — May 10, 2019).

7. I raised legitimate finance-related concerns, as I continue to do today. I have always told you the truth based on the facts presented. The joys of being a Certified Public Accountant and Certified Financial Planner.

8. Other than the piece below, my letter would be received by radio silence for nearly the rest of May. Not one reporter did a darn thing to follow up on the concerns my campaign delivered up to them on a silver-platter. Not one Orange County reporter broke through for what could have been a Pulitzer-prize winning story. By contrast, Timothy Heider and Joel Rutchick of the Cleveland Plain Dealer were awarded the prestigious Loeb Award for their journalistic efforts in exposing an identical financial scheme by the Treasurer of Cuyahoga County, Ohio, occurring in the same year (see MOORLACH UPDATE — GASB — July 21, 2011 and MOORLACH UPDATE — OC METRO — March 1, 2010).

Completing his analysis of county Treasurer-Tax Collector Robert L. Citron’s investments of public money, political challenger John M. W. Moorlach on Thursday reiterated his claim that Citron has been pursuing an overly risky strategy and has left the county’s investment pool vulnerable to rising interest rates.

“After reviewing the portfolio, it becomes clear that the possibility of loss is real,” Moorlach said. “I don’t think that anyone could come to a different conclusion.”

Moorlach, a Costa Mesa certified public accountant, had been studying the county’s management of a $7.5-billion portfolio for several weeks after obtaining treasurer records requested under the California Open Records Law. The portfolio contains contributions from more than 180 government agencies.

Citron is facing his first challenge in 24 years to the elected post of county treasurer, and Moorlach has waged an increasingly contentious campaign against him in recent weeks as the June 7 election nears.

Citron was unavailable for comment, but Assistant Treasurer Matthew R. Raabe said the candidate’s conclusions differ little from his past criticisims of Citron’s investment management strategies.

“He has the right to say what he wants,” Raabe said. “But there are plenty of people who think that what we are doing is exactly the right strategy. He’s been making the same claims for the past six weeks. I thought he would have something different to say by now.”

Moorlach’s recent review again takes issue with Citron’s frequent use of “reverse repurchase agreements” to enhance investment returns.

The strategy relies heavily on using the county investment pool’s U.S. Treasury bills and bonds as collateral to borrow short term at low interest rates, and investing the borrowed funds in corporate bonds and securities that pay a higher rate of return. This can yield large returns while interest rates remain low and stable. But the strategy can also fail when interest rates rise, as they have in recent months.

Since January, Moorlach said, the county has had to post an additional $300 million in collateral because the value of the securities used to borrow the money has declined as interest rates have increased.

Raabe confirmed Moorlach’s findings but indicated that the office was not concerned about the developments because the county investment pool is protected by about $1 billion in liquid assets.

Moorlach, however, said county officials are ignoring a potential problem.

“If rates continue to soar, couldn’t the size of the calls top $1 billion?” Moorlach asked rhetorically. “My problem is, why aren’t people making a connection here? I have not been screaming fire in a theater. I have legitimate concerns.”

To catch up with the rest of the string of Look Backs, go to MOORLACH UPDATE — Tax Cuts and Jobs Act — May 4, 2019.

This legislation would pry open hard-to-find government data

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By John M. W. Moorlach, Special to CALmatters

https://calmatters.org/articles/commentary/open-data/?utm_source=CALmatters+Newsletter&utm_campaign=4183a999a7-WHATMATTERS_NEWSLETTER&utm_medium=email&utm_term=0_faa7be558d-4183a999a7-150219273

Good government is open, clear government. There was a day when taxpayers had to purchase a paper copy of their city’s audited financial statements, known as the Comprehensive Annual Financial Report.

Now, these annual reports are free on most cities’ websites. But this still does not provide search capabilities or comparative analyses with the Comprehensive Annual Financial Reports of neighboring cities.

That’s why I introduced Senate Bill 598, the Open Financial Statements Act.

For all state and local governments in California, SB 598 encourages the adoption of a digital reporting standard. It goes by the initials, iXBRL. Please excuse the computer speak, but that stands for Inline eXtensible Business Reporting Language.

Its terrible name notwithstanding, Inline eXtensible Business Reporting Language means the financial information can be read by machines and–thank goodness–humans.

I’m a certified public accountant and love to dig into a Comprehensive Annual Financial Report. But citizens who are not accountants also should be able to easily read government financial documents.

That’s my goal with SB 598. By tagging categories in the financial reports, they would become searchable just like websites.

And the bill would require that the data be easily uploaded so people could produce comparison charts and graphs, and readily see how your city or school district budgets compare to those nearby.

A decade ago, the U.S. Securities and Exchange Commission required publicly traded companies it regulates to adopt an earlier version of the standard, called just XBRL. And last year the commission moved to the improved iXBRL.

It’s like migrating from film to digital cameras.

The Securities and Exchange Commission explained the new “format will bring disclosure data to life: computers will have the ability to parse the data in a timely manner, while humans can continue to view … that data within the same document.”

Why do I believe it is this necessary to adopt this private industry standard for governments?

Over the past year, I have issued reports on the financial soundness of California’s 944 public school districts, 482 cities, 58 counties and three higher-learning systems, as well as all 50 states.

It took weeks for my staff and me to comb through documents on the internet.

We only looked for one key balance sheet data point, the unrestricted net position, which should be positive (good) and not negative (bad).

This helped me write commentaries on the school districts in several counties. One in the Orange County Register was on the 27 districts in Orange County, finding all but one district bleeding red ink.

And just before teachers went out on strike in January in the Los Angeles Unified School District, I wrote a commentary in the Los Angeles Daily News. It detailed the terrible fiscal condition of the LAUSD, whose most current unrestricted net deficit was a staggering $19.6 billion, or $4,180 per person living within the district’s borders.

Obtaining this number for all of California’s school districts would take seconds if the Comprehensive Annual Financial Reports were iXBRL compatible, not weeks.

The unrestricted net position was just one data point. But if we had SB 598 in place, you easily could access dozens of other data points of these nearly 1,500 government bodies; and not just for one year, but many years.

The iXBRL standard has been adopted internationally, providing significant cost savings for accounting data publication. It’s free. And conversions are simple and result in significant cost savings.

SB 598 also would advance California’s reputation as a high-tech citadel. Florida passed a similar bill last year. So our computer state should seize the initiative and sprint in front of the crowd.

Such new fiscal transparency could also help cities, counties and school districts get their fiscal houses in order. Those in great shape, such as Irvine and its positive unrestricted net position of $442 million, could be held up as doing what’s right.

The Senate Appropriations Committee will consider SB 598 on Thursday.

It would open the books to easy analysis by everyone. An immense power to improve government would be given to legislators, local officials, credit rating agencies, bond investors, journalists, researchers and citizens.

John M. W. Moorlach is a Republican from Costa Mesa who represents Senate District 37,   senator.moorlach@senate.ca.gov.  He wrote this commentary for CALmatters. Read his previous commentary here.

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Apple, Best Buy Tax Perks Reined In Under California Bill

By Laura Mahoney

https://news.bloombergtax.com/daily-tax-report-state/bill-to-ban-tax-sharing-with-retailers-passes-california-senate

Deals that allow California cities to give millions of dollars each year in sales tax revenue to online retailers that locate warehouses or sales centers within their boundaries would be banned under a bill passed in the Senate.

S.B. 531 by Sen. Steve Glazer (D) targets a practice among some cities to give a portion of the sales tax that consumers pay back to major companies including Apple Inc., QVC Inc., and BestBuy.com LLC. Cities would be allowed to keep existing deals in place, but would be barred from entering into new ones.

Glazer said retailers are unfairly leveraging a 1 percentage point share of the state’s 7.25% sales tax that cities receive based on the location of a sale, and not the location of the customer. They negotiate with cities to receive a share of that revenue when choosing where to locate their warehouses or designate their statewide sales.

“This results in a rigged process driving cities to accept increasingly onerous tax sharing agreements in exchange for online retailers building or locating in their jurisdiction,” he said.

The Senate passed the bill May 16 by a vote of 27-8. It now moves to the Assembly, where it must pass by Sept. 13 to reach the desk of Gov. Gavin Newsom (D). He hasn’t taken a position on the bill.

Hundreds of Millions

Bloomberg Tax investigation found that some cities agree to give about half of their 1 percentage point share back to retailers every year for decades. About 10% of the state’s 482 cities are using the deals, giving hundreds of millions of dollars back to retailers annually.

An agreement between QVC and the city of Ontario could mean $112 million for the retailer over 41 years. Cupertino gives Apple 35% of its sales tax revenue from sales to businesses in California, and retail sales at its two stores in the city. The city has said the amount Apple receives is confidential.

The cities—some of them economically distressed—negotiate the deals to lure warehouses and call centers for retailers racing to meet demand from online shoppers. In some cases they’ve been used to keep existing jobs in town.

City officials say the agreements are one of few economic development tools they have left following the legislature’s repeal of other long-standing incentives, and that they generate additional tax revenue even with some of the money going back to the companies. But some city officials oppose the deals, saying they only benefit the retailers while pitting the cities against each other.

‘Profiteers’ Play Role

Glazer and Sen. John Moorlach (R) were also critical of consultants who profit from negotiating the deals between cities and retailers. A Bloomberg Tax investigation found one lawyer who could receive $20 million for brokering three deals.

“Bloomberg News just did a big story on the profiteers that have used [the tax rules] to manipulate arrangements with cities and taken profits for themselves,” Glazer said. “It was a great expose. I am certainly interested in trying to stop that.”

Moorlach was the only Republican to vote for the bill. Sen. Melissa Hurtado was the sole Democrat to vote against it. She represents Dinuba, a city in California’s Central Valley that has a 40-year agreement to share revenue with Best Buy.

The California League of Cities and the California Labor Federation support the bill. The California Retailers Association, and the cities of Fresno and Perris, oppose it.

To contact the reporter on this story: Laura Mahoney in Sacramento, Calif. at lmahoney@bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; Karen Saunders at ksaunders@bloombergtax.com

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MOORLACH UPDATE — May Revision 2019-20 — May 10, 2019

Gov. Gavin Newsom released his May Budget Revision yesterday morning. As a member of the Senate Budget & Fiscal Review Committee, my calendar will be packed between now and June 15th, the constitutional deadline for the Legislature to send a budget bill to the Governor for signature (followed by a plethora of abusive budget trailer bills to get a lot of legitimate and not so legitimate financial and other efforts passed after the official deadline).

The OC Register and LA Daily News published my immediate reactions to the Governor’s updated budget proposal in the first piece below.

KCRA News Channel 3 addresses the school funding component in the second piece below. My analysis of the 944 school districts in California shows about two-thirds are in fiscal distress. How can a state government that is enjoying such a large budget "surplus" not provide even more funding to the state’s schools? If a recession should raise its ugly head, then Sacramento will start crumbling like a house of cards when the districts show up on the Capitol’s front porch.

The budget also includes the Fairview Developmental Center. Funding for the closure study has already been approved, so the Governor’s request may be redundant (see MOORLACH UPDATE — Senate Bill 59 — February 7, 2017).

However, this is still a win, not because I’ve been advocating for homeless housing on the property (which I have not), but because we’re avoiding other bad things from happening to this property (like a recent budget request from the Department of Developmental Services to have their Southern Regional Center there). Providing services for the mentally ill has been my focus.

The budget narrative for Fairview is consistent with my office’s series of requests, going all the way back to SB 59 in 2017, and the subsequent budget appropriation. It took my office holding the Department of Finance and the Governor’s Administration responsible to get this money for the study, since Legislative Counsel has articulated that the process for the disposition of the land was not all that clear.

The Daily Pilot provides this component of the Governor’s budget discussion in the third piece below. Unfortunately, it’s missing a mention of my recently modified bill, SB 718, which may have changed the tenor of the article (see http://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200SB718).

OPINION

Gov. Newsom’s May Revision

helps some, but still spends too

much

By John Moorlach

https://www.dailynews.com/2019/05/09/gov-newsoms-may-revision-helps-some-but-still-spends-too-much-john-moorlach/

My thoughts are not all that different from Gov. Gavin Newsom’s regarding his May Revision budget proposal for fiscal year 2019-20, which begins on July 1. Overall, we have a governor who’s looking at a large, potential budget “surplus” of $21.5 billion. He’s certainly trying to use a decent portion of it for one-time expenses.

Economic trends show that, when the economy is doing well, more revenue than anticipated comes in from higher returns on capital gains and personal income tax receipts. In times of surplus, governors must show restraint and save for rainy days. When they don’t, they get in trouble – as former governors Gray Davis and Arnold Schwarzenegger can attest.

The new proposal warns, “[T]he state must be prepared for the possibility that even a moderate recession could result in revenue declines of nearly $70 billion and a budget deficit of $40 billion over three years.” Yet the state Rainy Day Fund is expected to have only $16.5 billion. Which certainly is better than having no fund at all, the condition before voters passed Proposition 2 in 2014.

Indeed, just hours before his presentation, Bloomberg reported, “The yield on 10-year Treasury notes fell below the 3-month bill yield for the first time since March. The curve between 3 months and 10 years has been hurtling toward zero this week as prospects for a trade agreement between the U.S. and China have dimmed.” Such an “inverted yield curve” historically has been a harbinger of a recession.

So prudence ought to be the word of the day.

The governor only partly dealt with the state’s approximately $256 billion in unfunded pension and retiree health liabilities. We will have a more accurate number later this month when Controller Betty Yee finally releases a late Comprehensive Annual Financial Report for the state for the fiscal year ending June 30, 2018.

He also called for a $140 million new annual tax to pay for clean water, when the record surplus easily could take care of that.

And he called for new regulations on charter schools. In the proposal’s words, “The May Revision proposes a statute to level the playing field for both traditional and charter schools,” supposedly to help minority students. Yet the San Diego NAACP maintained in a recent resolution that charter schools are top priorities for them, and “there are only 10 public schools in California with majority African American student enrollment that perform in the top half of student performance statewide…and eight of those schools are public charter schools.”

If the governor wants to achieve his stated goal of lifting state student test scores, then he should leave charters as they are.

The governor also is making a serious commitment to fighting homelessness. This “epidemic,” as the budget calls it, will be fought with $650 million in spending, up from the $500 million of the governor’s January proposal. Part of the solution is to reduce the cost of living in the state, but that will take discipline to stop increasing taxes and expanding state mandates and regulations that drive people from their homes.

At his press conference on the budget, Newsom mentioned mental health, the primary cause of homelessness, was a personal interest. So it has been for me.

I’m hoping he will support Senate Bill 640, which I authored, to change the definition of “gravely disabled” to help those whose mental illness won’t allow them to get adequate treatment without spending time in jail.

We’re finding out the state’s solution to mental institutions in the 1960’s only moved the problem to our streets and jails. And we are increasingly grappling with how to help the mentally ill who truly need care, while not forcing care on those who actually do need it. I believe SB 640 would be a significant step in the right direction.

On homelessness in general, I concur with the governor that we need to support local efforts. And his budget proposal would spend $2.2 million to complete the review of the disposition of Fairview Developmental Center, in the 37th District of the Senate which I represent. As we had requested several years ago – and had approved in a previous budget – we will finally have the ability to better understand the options in using the property. And we will be able to consult with our partners in Costa Mesa and Orange County to see if there is a proper and effective use of the facility for those with mental illness issues who may also struggle with their housing needs.

In sum, we have a state that’s got a surplus. But we have cities, counties and school districts still trying to make things come together and balance budgets, even though we have a thriving economy. The governor is trying to set aside reserves, but may find they are not adequate if we have a blip in the economy.

As a member of the Senate Budget and Fiscal Review Committee and the only CPA in the Legislature, I look forward to working with the governor on crafting a budget for our great state. The surplus rolling in is an opportunity both to deal with current needs and prepare for a future when the cupboard is bare.

John M. W. Moorlach, R-Costa Mesa, represents the 37th District in the California Senate

3 things to know about Gov. Newsom’s proposed education budget

Mike Luery

https://www.kcra.com/article/3-things-know-about-governor-newsom-proposed-education-budget/27425936

California Gov. Gavin Newsom proposed a $213 billion state budget Thursday that boosts spending on K-14 education, wildfires and ending homelessness while putting more money toward state reserves and debt.

Why is education the big winner in Newsom’s budget proposal?

“Forty-five percent of the budget is going to education,” Newsom said during his budget proposal Thursday. “We will have the highest investment in our K-14 education system in California history.”

The governor’s May Revision calls for $101.8 billion in spending on education. The general fund provides $58.9 billion of that, while $42.9 billion comes from other funds.

Newsom’s spending plan includes $696.2 million in funding for special education. That’s an increase of $119.2 million from the governor’s budget proposal in January.

There is also extra money for recruiting and retaining quality teachers.

“By some estimates, upwards of 8,000 teachers have been hired that have not had adequate training or that have been credentialed under the waiver program," Newsom said. “We are having that kind of trouble keeping teachers in the state of California.”

As for higher education, the governor’s May budget plan provides $240 million for the University of California from the general fund – plus an extra $153 million in one-time funding, with the understanding that UC will not raise tuition for California residents in school year 2019-20.

California State University and its 23 campuses will get $300 million from the general fund, plus $264 million in one-time funds, again with the expectation of no tuition increases for California students in the upcoming fiscal year.

Community colleges, with 115 campuses statewide, will be getting an extra $45 million under Newsom’s plan to extend free tuition from one year to two years.

“That would be so helpful,” said Sara Sanchez, a student at Sacramento City College. “I have so many bills at home. My parents don’t have that kind of money to help us with school.”

“So there’s just one less thing to be worried about,” said Sacramento City College student Julia Macay. “We can just focus on get all those A’s, you know?”

Is the extra money for public schools going to the classroom or to pay for teacher health care and pensions?

“Well, the health care reduces the costs overall to each district,” Newsom said.

The governor’s plan originally called for reducing employer contributions to CalSTRS from 18.3 % to 17.1% in the upcoming fiscal years. But now, Newsom plans to add $150 million more in one-time spending to reduce employer contributions to 16.7 percent.

But Newsom indicated some of the additional spending would be used on teachers.

“We talk about enhancements for teacher training,” Newsom said. “The enhancements for kindergarten and other related enhancements. We think that’s part of a larger bucket.”

Newsom’s budget would provide approximately $5,000 more per student compared to eight years ago.

How do Republicans feel about the governor’s spending plan on education?

“We need more money going directly to the classrooms,” Senate Republican leader Shannon Grove said.

“And for the students, we need more local control with our dollars for education,” Grove said.

But some Republican lawmakers wondered why a state with a $21 billion surplus could have so many school districts, like Sacramento City Unified, that are running out of money.

“These districts, either they’ve been mismanaged or they have overpromised,” said Sen. John Moorlach, a Republican from Costa Mesa. “And so that is something that is lingering. It’s in the shadows."

“The state is flush (in money), but school districts are not,” Moorlach said. “So why isn’t the state allocating more to the kids?”

State looks to explore developing homeless services at Fairview Developmental Center in Costa Mesa

By LUKE MONEY

https://www.latimes.com/socal/daily-pilot/news/tn-dpt-me-fairview-homeless-20190509-story.html

Though the long-term future of the Fairview Developmental Center is still to be determined, state officials are again raising the possibility of using the Costa Mesa property to provide services for the homeless.

In a revised budget proposal released Thursday, Gov. Gavin Newsom called for designating $2.2 million “to complete a site evaluation of disposition options” for the 114-acre, state-owned center at 2501 Harbor Blvd.

That effort would “include identifying constraints and opportunities, working with the city of Costa Mesa and Orange County to identify local stakeholder interest in the reuse of the property, particularly related to meeting housing and homelessness needs, and identifying options that will generate the greatest benefit to the state,” according to the budget summary.

At the same time, the state would “explore options to immediately enter into a long-term lease with a local jurisdiction to provide housing and supportive services for up to 200 individuals with cognitive disabilities who are currently homeless.” Fairview would be considered for that purpose.

Assemblywoman Sharon Quirk-Silva (D-Fullerton), who previously proposed the concept through her Assembly Bill 1295, said in a statement Thursday that “these men and women are our hidden neighbors; they come from all over Orange County and need shelter and medical care in order to find stability and hope.”

However, Costa Mesa leaders were cooler to the concept. Mayor Katrina Foley said she believes a better tactic would be for the state to help fund the city’s ongoing efforts to address homelessness — such as a recently opened 50-bed temporary shelter at Lighthouse Church of the Nazarene — “to help us help people immediately.”

“From our perspective, we would rather have the governor redirect funding from studying options at Fairview Developmental Center to investing in a plan that we have community support for,” Foley said Thursday. “We have a system of care that has been shown to be effective already, just since we opened in April.”

Assemblywoman Cottie Petrie-Norris (D-Laguna Beach), whose district includes Costa Mesa, also said she favors the state putting its resources toward supporting more-immediate, locally based solutions to combat Orange County homelessness.

“We have a list of projects that need funding now, will start to get people off the streets now and will save lives now,” she said in a statement. “The quickest and most effective way for us to build capacity is to invest in existing local programs that are working.”

Petrie-Norris said in an interview that it’s vital for the local community to play a major role in determining the next chapter for Fairview so “we come up with a future use that … does good and serves a positive purpose for Orange County.”

“I think it’s premature to determine the specific use of that property given how far away that use would be and given how urgent I feel the need is here and now,” she said. “As state leaders, I think the most powerful role that we can play is to use our capacity to amplify the work of the groups that are already getting results on the ground.”

Fairview — like similar facilities around the state that serve adults with intellectual and developmental disabilities — is scheduled to close as part of an effort to transition people out of institutional-style centers and into smaller accommodations that are more integrated into communities. As of April 24, 57 people were living in the Fairview center, according to the state Department of Developmental Services.

Fairview’s remaining clients are expected to move out by the end of this year, according to the state budget summary.

Previous proposals to house regional homeless services at the developmental center have been met with swift and fierce community condemnation.

In March 2018, then-county Supervisor Shawn Nelson announced that he and state Sen. John Moorlach (R-Costa Mesa) were looking into the potential of using the site as an emergency homeless shelter. Costa Mesa City Council members responded by quickly convening a special meeting to voice their unanimous disapproval.

Since then, the city has spent millions of dollars to develop its temporary homeless shelter at Lighthouse Church and purchase a property near John Wayne Airport for potential use as a long-term location.

“We’re having to dip into our reserves to pay for the permanent shelter,” Foley said. “We certainly agree with the governor that the homeless crisis and solutions for people who are suffering mental illness are incredibly important, and we have a plan. We’d love to have him partner with us to implement our plan today instead of someday in the future.”

It’s incumbent on all Orange County cities to “do their fair share in terms of addressing homelessness in their community,” she added, because “if we all participate, then there isn’t one city that has to become a regional space for caring for the most vulnerable in our county.”

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MOORLACH UPDATE — Wildfire Cost Reverberations — May 9, 2019

I’ve been working on wildfire prevention legislation since the day I’ve been able to introduce bills, starting with SB 1463 in 2016. Since then, the worst utility-caused fires in California history have occurred in 2017 and 2018. Consequently, I was asked to serve as vice chair of the Senate Energy, Utilities and Communications Committee and, in recent weeks, membership on the new Select Committee on the Governor’s 2019 Report: Wildfires and Climate Change — California’s Energy Future.

The new Select Committee held its first meeting yesterday afternoon. It was a hearing with a few members of the Strike Team that prepared the report and two members of the Commission on Catastrophic Wildfire Cost and Recovery, presenting on two panels.

Let’s take an abbreviated inventory of observations, many resulting from prior policies and neglect from Sacramento. California has:

1. Tree mortality issues, with more than 129 million dead.
2. An aging electrical infrastructure.
3. A desire to increase electrification of the state.
4. Limitations on managing forests.
5. A virtual stranglehold prohibition on harvesting lumber.
6. Foot dragging on identifying high risk fire areas for mitigation (thus, the reason for my presenting SB 1463),
7. A Public Utilities Commission (CPUC) that has become bloated, inefficient, and over-reaching.

During my opportunities to participate in the discussion, I focused on forest management and the CPUC. Surprisingly, California Natural Resources Agency Secretary Wade Crowfoot was complimentary of the Federal government’s managing of its 57 percent of forest land. This was quite a different response from the usual D.C. bashing that occurs here in the Capitol. It’s time for Sacramento to have a discussion with D.C. to get federal forests into the possession of California. With such a maneuver, the Capitol would have to stop pointing fingers when the mountains and hills are burning. The Courthouse News Service provides my concerns about the "monolithic" CPUC in the piece below.

No Easy Solutions for Rising Wildfire Costs in California

Matthew Renda

https://www.courthousenews.com/no-easy-solutions-for-rising-wildfire-costs-in-california/

FILE – In this Thursday, Nov. 8, 2018, file photo, the Camp Fire rages through Paradise, Calif. (AP Photo/Noah Berger, File)

SACRAMENTO, Calif. (CN) – About six months ago, the Camp Fire laid waste to the town of Paradise, California, and eventually killed 85 people, destroyed 18,000 buildings and caused an estimated $16.5 billion in damage.

The most destructive wildfire in California history came a year after the second-most destructive wildfire in state history – the Tubbs Fire, which razed a huge swath of Wine Country north of San Francisco, killing 22 people, burning down about 5,600 buildings and wreaking $1.3 billion in damage.

The consecutive large fires have not only devastated families and communities, but both public and private officials continue to grapple with the financial, regulatory and legislative issues.

This wildfire-driven crisis was evident during a meeting of the state Senate Select Committee, convened to discuss Governor Gavin Newsom’s “Wildfire and Climate Change” report.

“We’re trying to get something big done by July 12,” said state Senator Bob Hertzberg, D-Los Angeles, during the hearing. “We need you to help us get there.”

Hertzberg addressed a panel of experts convened to discuss how the state will face the lingering wildfire crisis going forward. While the typical ideas of more money for forest treatment, defensible space, the augmentation of firefighting forces and the like came up, lawmakers and panelists focused on two urgent legislative problems: The need to reform the California Public Utility Commission, and figuring out a way to pay for the enormous damage of the last two fire seasons.

“We believe that stable, well-managed and investible utilities are a benefit to the state of California,” said Nancy Mitchell, a bankruptcy lawyer who presented lawmakers with a range of options for solving the financial issues now and in the future.

While a wellspring of public sentiment focuses on making utilities pay for rebuilding costs associated with fires many believe were caused by negligent utility infrastructure maintenance, Mitchell pointed out the utilities will likely pass on those costs to ratepayers.

Michael Wara, a California energy expert, said ratepayers will likely pay 14 to 16% more in the near term.

Pacific Gas & Electric, whose wires are believed to at least be peripherally involved in the Camp Fire and others, is currently mired in bankruptcy proceedings.

One idea floated during the hearing involves holding investor-owned utilities accountable for costs if they are found to be directly at fault. Presently, utilities are on the hook even if they are found merely negligent.

“It’s about shifting the risk of property loss to insurance companies or underinsured property owners in instances where the utility is not at fault,” Mitchell said.

Another idea involves creating a state-managed fund dedicated to wildfire rebuilding costs, alleviating the need for onerous utility rate hikes.

Judging by the reaction of the senators, both ideas had drawbacks and several details must be ironed out.

“There’s nothing more offensive than asking people who just lost their homes to pay into a fund to bail out utilities that may have contributed to the problem,” said Mike McGuire, D-Healdsburg.

Hertzberg repeatedly demanded a figure, with some estimates coming back for as much as $40 billion – almost a quarter of the state’s entire budget.

Meanwhile, other experts said a needed reform centered on the state’s utilities commission, which has several industries to regulate and has evolved to preside over rates and related issues rather than clean energy transitions and wildfire safeguards.

“The more I look at the CPUC trying to cover so much territory and cover so many industries I am wondering if restructuring, reorganizing and splitting up different divisions might be more appropriate,” said John Moorlach, R-Costa Mesa.

Mitchell acknowledged the scope of the agency is broad.

Other lawmakers also took issue with the public’s ability to meaningfully engage with the commission. Because it is a quasi-judicial agency, if a person wants to participate in a given issue being deliberated, they must file to become an intervenor.

“That is hogwash,” said McGuire, adding any additional funding for the commission to expand its oversight will come with the condition of additional transparency.

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MOORLACH UPDATE — Shining a Light — May 8, 2019

CBS Channel 13 News provided another theatrical news update, this time on the State Auditor’s report released yesterday, disclosing yet another Caltrans employee’s financial abuse (also see MOORLACH UPDATE — SB 319 High Speed Road — February 19, 2019). It’s the first piece below.

The East Bay Express noted my Senate Floor speech from Monday afternoon on SB 293 (Skinner) in the second piece below. I’m really concerned about the city of Oakland and I can understand why the Raiders want to relocate to Las Vegas. The city is in awful shape. So, I mentioned my 2018 study of cities, and Oakland placed #479 out of 482 cities, just about dead last (see MOORLACH UPDATE — City CAFR Rankings – Vol. 1 – February 7, 2018 and MOORLACH UPDATE — Get Mad, Get Motivated — October 19, 2018 ). And, we used Oakland’s June 30, 2016 CAFR, which reflected an unrestricted net deficit of $1.79 billion!

The following year’s CAFR reflected an even larger unrestricted net deficit of $1.79 billion! But the June 30, 2018 CAFR shows it’s $2.4 billion!! That’s what adding $836 million in Other Post Employment Benefits (OPEBs) will do to a balance sheet. And this is a city with a population of only 426,074.

Oakland Unified is also in lousy shape (see MOORLACH UPDATE — Oakland Unified School District — February 21). So I also mentioned its alarming stats in my remarks.

I laid off when SB 293 was presented in Senate Governance and Finance. On the Floor I stated that I would vote for the allowing of the creation of an Infrastructure Financing District, a redevelopment agency-like vehicle, even though it excludes voter involvement on debt issuances.

I visited Coors Field in Denver during its inaugural year and I’ve enjoyed a game at Petco Field in downtown San Diego. Oakland definitely needs a fiscal shot in the arm and an economic boost to improve its dismal balance sheet. I’m just not sure if moving a baseball stadium will do it, but it’s better than losing its last professional sports franchise. I wish this effort all the best, all the while biting my lip.

The third piece is from City Journal and expands on my SB 319 Autobahn bill.

25th Anniversary Look Back

On Sunday, May 8, 1994, Chris Knap of the OC Register was back with “Treasurer says gains offset losses — Government: County official Robert Citron explains his investment actions.” Can you imagine? An article to defend losses incurred from collateral calls? Here are the opening and two additional paragraphs:

The late-winter jump in interest rates spurred Orange County Treasurer Robert L. Citron to cash in $200 million in devalued securities, costing the county investment pool $8.46 million, transaction records and interviews show.

Citron said the losses were balanced by the sale of $275 million in high-performing securities, which brought the county $8.97 million in profit. “We came out with a net gain, overall, and prepared ourselves to re-enter the market in 30 to 45 days to obtain investments at higher interest yields,” Citron said. “The trading we did was not at all unusual.”

Experts in municipal finance contacted by The Orange County Register said a loss is sometimes necessary when an investment turns sour. But an investor for the state of California who takes a more conservative stance than Citron said he would not want to have to explain such a loss to the cities and counties that deposit with him.

“Losses can cause a lot of questions and concerns,” said William Sherwood, chief of investments for the $26 billion pool run by the state treasurer. “It’s something that we quite frankly don’t like to do. We buy and hold (until maturity).”

Citron, Orange County’s elected treasurer for 23 years, has been greatly praised in the past few years for earning returns as high as 10 percent on his $8 billion in deposits _ generally twice the returns of the state pool.

But this year, he is facing an election challenge from Costa Mesa accountant John M. Moorlach and has had to defend his strategies, which Moorlach has called too risky.

On May 12th, I sent Chris Knap and other reporters covering the campaign a letter with a summary of the portfolio as of March 31, 1994, and number of questions that they should consider pursuing for accurate answers. The portfolio was $21.7 billion, with $14.4 of it borrowed!

The first question was rather basic.

Investors understand that increased risks are usually associated with increased returns. Orange County’s Pool can boast that over the last few years its returns have out-paced most other Municipal Funds. Has this been due to taking on more risks than other funds?

Auditor: State Workers Caught

Behaving Badly

By Steve Large

https://sacramento.cbslocal.com/2019/05/07/auditor-state-workers-caught-behaving-badly/

A California State Auditor report is shining light on some state workers caught behaving badly on the job.

The audit is titled “Investigations of Improper Activities by State Agencies and Employees.” It stems from an investigation into hundreds of allegations that state workers wasted taxpayer money while on the job.

One of the auditor’s biggest findings — a Caltrans employee who got a job in Sacramento, but never moved here. Instead, she flew here to work and had taxpayers pick up her tab.

According to the state auditor, this state employee gave herself quiet the travel budget, racking up thousands of dollars in airfare.

She also got rental cars paid for, charged the state for mileage during her time in Sacramento, and was reimbursed for meals and incidentals too.

The audit shows Caltrans approved the receipts she submitted totaling more than $40,000 for her commute to work spanning from February 2016 to March 2018.

“It’s very disconcerting,” State Senator John Moorlach said.

Moorlach has been a critic of Caltrans oversight for years and calls the results of this audit part of a pattern.

“I get frustrated with the lack of good internal controls and management not paying attention, or maybe winking, like okay, let’s pay for her transportation and her commuting costs including a rental car, and just hopes no one catches it,” Moorlach said.

In 2015 a state audit found a Caltrans engineer golfing instead of working on 55 of his scheduled days. In 2016 another state audit found Caltrans spending habits open the door to fraud.

Responding to the recent audit, a Caltrans spokesperson Matt Rocco issued a statement reading in part, “Caltrans is updating its guidelines and training to make sure that travel is assigned appropriately. We are also reviewing on a monthly basis those employees on travel status.”

The state auditor has asked Caltrans to determine if they can collect any of the money taxpayers paid for the state worker’s travel expenses. She is now retired.

Port of Oakland to Approve Term Sheet With A’s

Plus more cannabis for Hayward, and Swalwell qualifies for debates

By Steven Tavares
https://www.eastbayexpress.com/oakland/port-of-oakland-to-approve-term-sheet-with-as/Content?oid=26245190

 

Howard Terminal stadium plan clears another hurdle.

Howard Terminal stadium plan clears another hurdle.

The Port of Oakland Board and Oakland Athletics are set to sign an exclusive four-year term sheet to lease the Howard Terminal waterfront property to the team for construction of a new waterfront ballpark. An item on the term sheet is scheduled to come before the Port of Oakland Board of Commissioners on May 13.

The A’s will pay the Port $100,000 for the right to continue negotiations over the purchase of the 50-acre property located west of Jack London Square. The team hopes to build a 35,000-seat ballpark on the site that also includes 3,000 housing units and retail. Under terms of the agreement, the A’s would pay an additional $150,000 to the Port if a deal is not consummated after one year; $200,000 after two years; and $250,000 after three years.

The framework for the term sheet sets the annual rent price for the property at $3.8 million for the first 20 years. The proposal reserves the Port’s authority to approve any final project for Howard Terminal until the A’s have fully navigated the long list of land-use hurdles associated with building on the bay. It also requires the A’s to offer a comprehensive traffic plan to the Port as part of the permitting process.

Meanwhile, legislation that would help the City of Oakland finance infrastructure and transportation projects for the ballpark was approved Monday by the State Senate on a 34-0 vote. The bill would allow Oakland to create an infrastructure financing district.

“Any financing that emanates from the district would not be used for the actual stadium itself — that is going to be privately financed — but rather for the other transportation and other infrastructure that may be needed at the site,” Skinner told her Senate colleagues.

State Sen. John Moorlach, a Republican from Costa Mesa, said he struggled with giving support to the plan at a time when the finances of Oakland’s school district are so poor.

“I get a little nervous about certain transactions and I’ve looked pretty closely at the City of Oakland,” said Moorlach, who labeled the bill a “redevelopment-like vehicle.” He then read out loud the Oakland Unified School District’s dismal financial record. But Moorlach’s then offered his support for the bill with a caveat. “Oakland needs a shot in the arm and economic boost to its distressful balance sheet. I’m not sure moving a baseball stadium will do the trick, but I sure hope it does. If it doesn’t, I sure apologize in advance for encouraging an aye vote on SB 293.”

Skinner assured Moorlach the bill does not take away property tax increment that would otherwise go to Oakland schools, similar to how redevelopment agencies once operated in the state.

The bill heads to the Assembly for debate.

EYE ON THE NEWS

High-Speed Alternatives to High-

Speed Rail

California needs to shelve its boondoggle and consider alternative proposals from the private market.

Kerry Jackson

https://www.city-journal.org/california-high-speed-rail-alternatives

On the campaign trail, California governor Gavin Newsom expressed support for the state’s high-speed rail project, but he’s been more reticent since taking office earlier this year. In February, he proposed to cut back on the plan because it “would cost too much and . . . take too long,” a welcome note of skepticism, but soon afterward, his staff issued a “clarification” explaining that the governor was simply “refocusing to get a finished product from Bakersfield to Merced,” the first leg of the envisioned rail system.

The high-speed rail project is a disaster, with cost projections ballooning and the anticipated time of a trip from San Francisco to Los Angeles coming in at four hours; an airplane can get you there in one. The practical thing for Newsom to do would be to scrap it entirely, but that’s not politically feasible. He might be better advised to consider a private-market alternative that could satisfy both practical and political considerations: an autonomous autobahn, where, according to Motor Trend writer Mark Rechtin, “vehicles equipped with self-driving technology run in platoons at a constant 120 mph.”

It may be some time before autonomous cars can navigate streets and adapt to all the complexities of urban life, but self-driving freeway travel might not be so far off. It will require better highways, which don’t come cheap in California, where road construction costs 2.5 times the national average, due in large part to costly environmental reviews and pro-union contracts. But even at $7 million a mile for new rural-freeway construction and $11 million per mile for its urban counterpart, the price tag for a California superfast highway, stretching roughly 500 miles—the distance between San Diego and Sacramento—would be only about 5 percent of that of high-speed rail, which current projections put between $70 billion and $120 billion. The model is Germany’s autobahn, “a reliable national highway system that is very safe despite an unrestricted speed limit,” according to state senator John Moorlach of Orange County. Moorlach cites a World Health Organization study that estimates that road traffic deaths-per-mile in Germany are one-third as common as in the United States.

Access to this high-tech superhighway would be strictly controlled. “Only properly inspected smart vehicles with transponders would be permitted,” says Rechtin. With usage limited to qualified automobiles, the cost of building an autonomous autobahn would properly be shouldered by those who drive on it, preferably via tolls. “Who wouldn’t pay an extra $100 (half a plane ticket) to zip along, hands-free, at double the speed of the current I-5, not having to deal with TSA at the airport, and still have access to their own car when they reach their destination?” Rechtin asks. In this scenario, the autobahn would be the car version of an express flyer, with exits and rest stops spaced out at 50-mile intervals to reduce lane-changing.

Moorlach introduced a bill to open such a road earlier this year. In its original language, it required the California Department of Transportation to build “two additional traffic lanes on northbound and southbound Interstate Route 5 and State Route 99,” the major north-south freeway routes in the state, and to “prohibit the imposition of a maximum speed limit for those traffic lanes.” Since amended, the bill now more modestly directs the department to “submit a report that includes policy recommendations to the Legislature and the California Transportation Commission on any potential advantages of the German autobahn system compared to California’s state highway system and on the feasibility of implementing those potential advantages in California.” Moorlach believes that his autobahn project would appeal to the state’s Europhiles in the same way that the Euro-flavored “bullet train” attracted their support.

An autonomous autobahn is not the only alternative to government-run high-speed rail, however. A Florida-based firm, now called Virgin Trains USA after partnering with British billionaire Richard Branson, operates the country’s only private-owned intercity rail line and is moving ahead with a rail project connecting Los Angeles and Las Vegas. Virgin Trains USA is confident that it can keep costs down and make a profit; no one believes that California’s high-speed rail project could do either of those. California policymakers would also be wise to keep an eye on a private-sector rail project in Texas, as well as Elon Musk’s hyperloop proposal.

These initiatives may or may not pan out, but as Pacific Research Institute fellow Bartlett Cleland says, whether the market deems them successes or failures, “the risk will be borne by investors”—not taxpayers. The same can’t be said of California’s high-speed rail; taxpayers may have to cover nearly all its construction costs. It’s time for the Golden State to shelve this unworkable project and start looking at alternatives that might actually succeed in moving people around the state ten years from now.

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MOORLACH UPDATE — Tax Cuts and Jobs Act — May 4, 2019

When it comes to financial issues, no one likes to be surprised. So, during my practice days, I would assist my clients with income tax projections when major events occurred, like significant tax law changes. This would eliminate surprises.

Another goal is to avoid large income tax refunds. During my practice days, keeping the additional funds in a bank account would generate a nice sum of interest income. The I.R.S. does not pay you interest on your excess withholdings.

This little preamble should set you up for the OC Register piece on the reaction by some to the Federal Tax Cuts and Jobs Act. My anecdotal survey finds that Orange County taxpayers were about 50/50. About as many saw a tax reduction as saw a tax increase. The piece provides better statistics, but it is always a good move to do an income tax projection at the beginning of the year to avoid surprises.

For a look back on the gimmick that I referred to, see MOORLACH UPDATE — SB 227 — January 15, 2018.

25th Anniversary Look Back

I have to marvel, in reflecting back 25 years ago, the words selected by the headline writers: thrust, risk, claims, rebut, turmoil and alert.

Mark Platte and Jeff Brazil of the LA Times were back on April 30th with “O.C. Treasurer Thrust Into Spotlight Over Risk Claims — Investments: Robert Citron, facing his first contested election in 24 years, points to high returns to rebut critics” (see https://www.latimes.com/archives/la-xpm-1994-04-30-mn-52163-story.html).

Not once did the LA Times do a lengthy profile on me. They never interviewed my wife to see how she was holding up during the campaign. In retrospect, it was a sad indictment on the state of journalism for me.

The OC Register showed its biases, too. In the May 2nd edition, under the banner of “Focus on Politics ’94,” on the the topic of “Orange County’s Treasury,” 3 of the 4 quotes favored the current treasurer and his investment strategy. Here is the one opposing quote that turned out to be correct and appropriate:

“That’s a highly, highly leveraged portfolio. For that to be happening with public trust funds is just wrong. The whole concept of that kind of leverage–you’re reading every day in the papers of all the companies getting burned on these derivatives. Citron is playing with things that the big guys are getting burned on.” Derek Lewis, 53, securities, Newport Beach

But, also on May 2nd, the Daily Pilot would give me some fair coverage in a front-page story, asking questions like: What was your inspiration to run for the office of county treasurer? You requested a large number of documents from Mr. Citron in order to do your own audit of the county’s investment strategy. Has he complied? How can you convince voters that you’re the right person to set things right? It was titled “Treasurer candidate Moorlach not your average accountant.” Here’s one of my responses:

“And we said from the beginning of the campaign, if interest rates go up, we have some serious problems. And I’m real sorry, but interest rates have gone up and there is no fail-safe, risk-free investment that out performs everybody in the country. Otherwise, everybody else besides Mr. Citron is downright stupid.”

On May 5th, 1994, Kevin Johnson of the LA Times was back with a gem, “O.C. Treasury Turmoil Puts Officials on Alert — Investing: Sanitation district contends it lost money after criticism by executive Robert L.Citron’s political foe. The county may delay refinancing bond money(see https://www.latimes.com/archives/la-xpm-1994-05-05-me-53991-story.html).

Moorlach dismissed the district’s contentions that it lost money as “weak political posturing by people who are not paying attention.”

“[Criticisms by the Moorlach campaign] are like a guy who runs into a theater and yells ‘Fire!'” {Peer Swan, the Orange County Sanitation District’s fiscal policy chairman} said. “This is real money we’re talking about. It would have been real easy to create a stampede.”

Moorlach, however, said he had no intention of backing down on his criticism of Citron’s practices and scoffed at the idea that debate from one campaign could place Orange County at a disadvantage in the marketplace.

Government is full of ironies. It would be Peer Swan who would demand withdrawals that started the “stampede” in the fall of 1994, eventually leading to the collapse of the County’s Investment Pool and the necessity for Orange County to file for Chapter 9 bankruptcy protection.

For the last edition of the Look Backs, see MOORLACH UPDATE — Capitol Dances — May 1, 2019.

Trump’s tax cut turns politics on its head in Southern California

Dems push for lower rate, while GOP leaders defend a code that raises bills for many

By Brooke Staggs

https://www.ocregister.com/2019/05/03/trumps-tax-cut-turns-politics-on-its-head-in-southern-california/

In the nearly 19 years that they’ve been married, high school teacher Brooke Leys-Campeau and her husband have received a big enough tax refund each year to pay the property tax bill on their modest Tustin home.

Sometimes, the refund was big enough to help cover the fees for their son’s travel baseball team, or voice lessons for their theater-loving daughter.

Not this year. Leys-Campeau, 43, said when the couple filed taxes they owed the federal government $1,000, a debt they say was a direct result of the 2017 tax plan championed by House Republicans and President Donald Trump.

Now, the Leys-Campeaus, like at least some other Southern California residents, are looking to Democratic politicians for relief from the GOP tax plan. It’s a reversal of a long-time political trope that suggests Democrats are the party of “tax and spend” and Republicans always whack taxes.

The Tustin family is in the minority, at least when compared with the rest of the country. Nearly two-thirds of Americans paid an average of $1,300 less in income taxes under the federal Tax Cuts and Jobs Act, according to the nonpartisan Urban-Brookings Tax Policy Center. Though this year’s tax refunds were down by about 2 percent, most people more than offset that with slightly bigger paychecks.

“The tax plan is working for Orange County families,” said Fred Whitaker, chairman of the Orange County GOP. “Between larger pay checks and tax refunds, working families are getting to keep more of their hard-earned money.”

But even Whitaker and some other Republicans say the tax plan, parts of which will sunset in 10 years, needs “fine tuning.” They note that many families in Orange County and similarly affluent areas were hit much harder than the rest of the country, primarily due to new limits on deductions available to homeowners.

Two former GOP House members who represented parts of Orange County in 2017 — Rep. Dana Rohrabacher, R-Costa Mesa and Rep. Darrell Issa, R-Vista — voted against Trump’s tax plan because it would boost taxes for many of their constituents.

The politics of Trump’s tax plan have already had some local impact.

In the 2018 midterms, voters in once staunchly Republican Orange County chose Democrats, not Republicans, to represent them in the House of Representatives. Though those results reflect many issues, political experts note it came after the GOP supported a tax plan that helped corporations and wealthy individuals while expanding the national debt and boosting the tax burden for hundreds of thousands of upper-middle class residents in states like California.

And now that Tax Day has come and gone, and Orange County homeowners have felt the real-world impact of a bill described as a tax cut for most Americans, local Democrats are hoping the issue will help them keep House seats in 2020.

Lots of people affected

The most significant hit for local residents is a new cap on deductions for state and local taxes, also known as SALT.

Americans have been able to deduct whatever they pay in state and local income, sales and property taxes from their federal tax bills — with no limits — since 1913. But Trump’s tax plan capped the SALT deduction at $10,000, even for married couples filing jointly.

Roughly one million Californians are expected to owe a combined $12 billion this year as a result of that new rule, according to estimates from the Franchise Tax Board. Californians who earn more than $1 million a year will carry two-thirds of that burden, but the tax board estimates that about 751,000 California households making less than $250,000 also will owe an extra $1.1 billion, an average of about $1,460 each.

A lot of those households are in Orange County, which is disproportionately affected because of high property values as well as high state taxes.

Exact numbers aren’t known.

Rep. Harley Rouda, D-Laguna Beach, commissioned a report that found 38 percent of homeowners in his 48th District — which covers much of coastal Orange County — who were able to deduct full SALT taxes in 2018 will essentially pay taxes on the same money twice this year because they hit the new $10,000 cap. And Rep. Katie Porter, D-Irvine, estimates that 37 percent of taxpayers in her 45th District, which runs from Irvine to Mission Viejo and through Anaheim, use the SALT deduction, with an average deduction of $18,200 per household.

“I have a lot of ordinary, middle-class clients with modest homes in ordinary areas who were hurt by this limitation,” said Vere Chappell, an accountant who for more than a decade has prepared tax returns in Orange County and surrounding areas.

For Laurice Strickland, a 64-year-old technical writer from Mission Viejo, the SALT deduction was really all she could claim to improve her tax situation as a single mom of grown children. With the new cap, Strickland said she lost out on $7,000 in SALT deductions this year, prompting her to take out a loan to help pay her youngest son’s college tuition.

“We shouldn’t be penalized for living in a high cost state,” she said.

Federal fix seems unlikely

Local House Democrats — along with representatives from other high-tax states, such as New York and New Jersey — are doubling down on efforts to undo the SALT cap. Several bills now pending in the House would remove or adjust that deduction limit going forward.

Porter led a bipartisan call for House Speaker Nancy Pelosi, D-San Francisco, and Minority Leader Kevin McCarthy, R-Bakersfield, to prioritize repealing the SALT cap this session. Reps. Rouda and Gil Cisneros, D-Yorba Linda, signed a letter supporting the effort.

Rouda is cosponsoring the SALT Act, or HR 1142, which would eliminate the SALT cap and pay for it by restoring the 39.6 percent individual income tax rate bracket. That bracket was dropped in the GOP plan, with wealthy earners now capped at a tax rate of 37 percent.

Porter didn’t back that bill because it would raise taxes on upper middle-class families, an aide said.

When asked how Porter suggests making up for the estimated $620 billion in tax revenue that would disappear if the SALT cap was removed, the aide said Porter is open to ideas such as “ending tax breaks for Big Oil and for companies that ship jobs overseas.” The aide said Porter thinks it’s unfair to raise taxes on Orange County families while companies like Amazon and Chevron paid no taxes in 2018.

Despite these efforts, most experts think a federal change to the SALT cap is unlikely this term.

The tax plan is considered the signature legislation of the Trump administration. And Sen. Chuck Grassley, R-Iowa, said earlier this year that he won’t consider tweaks to the SALT cap while he heads the Senate Finance Committee.

On the legal front, several liberal leaning states — New York, New Jersey, Maryland and Connecticut — filed suit last year against the Trump administration, claiming the SALT cap was illegal and designed to penalize blue states.

Due entirely to the disproportionate impact of the SALT cap, an April study by the Federal Reserve Bank of Atlanta found that the GOP tax plan increased long-term personal wealth by 1.6 percent in red states and 1.3 percent in blue states. California saw the smallest gains, at 0.9 percent.

The multi-state lawsuitover the SALT deduction cap is pending.

State SALT workaround dead?

Last year, Democrats in Sacramento proposed a few state workarounds to the federal SALT cap.

The legislature approved a bill from Sen. Kevin de Leon, D-Los Angeles, that would have let Californians skirt the $10,000 limit by giving them state tax credits that on federal filings would translate to charitable deductions. But Gov. Jerry Brown vetoed the bill in September, saying it “confuses an already complicated scheme and could invite intervention by the Internal Revenue Service.”

That’s why State Sen. John Moorlach, R-Costa Mesa — who serves as vice chair of the Senate Governance and Finance Committee — said he opposed what he described as “gimmicky” workaround proposals. Indeed, after New York, New Jersey and Connecticut approved similar laws, the IRS issued guidelines limiting how such charitable deductions could be claimed.

New York also approved letting employers voluntarily add a payroll tax, which employees could then claim as a credit come tax time. But just 262 businesses registered to participate in the program.

Moorlach said he hasn’t heard any new proposals for California workarounds to the SALT cap this session.

Whitaker, with the county GOP, argued that one state solution is in reach.

“If the Democrat supermajority in Sacramento wanted to fix the SALT deduction problem, they would lower taxes immediately,” he said.

Other deductions also at play

Since it doubled the standard deduction, the Tax Cuts and Jobs Act also took away most other itemized deductions that had benefited many Orange County families — from moving expenses to alimony payments.

Chappell said he had clients who are nurses and teachers and truck drivers who could no longer deduct expenses for things like certification courses or travel expenses.

“A lot of them — particularly in Orange County — were unpleasantly surprised.”

Linda Duffy, an Irvine homeowner who runs her own human resources firm, said she gets 100 percent of her business from referrals. That means lots of networking over coffee or business lunches.

Since she couldn’t write any of those expenses off this year, or claim her full SALT deduction, Duffy said she went from usually coming out even or owing a small amount to owing $9,000 in federal taxes this year.

Moorlach said he wasn’t able to deduct interest on the home equity line of credit he took out to help with his child’s college tuition, noting that the new law restricts those deductions. Going forward, Moorlach said he might instead consider refinancing his home, since that doesn’t come with the same restrictions.

The tax bill did allow residents to deduct more medical expenses this year, since it lowered the threshold to write off hospital bills from 10 to 7.5 percent of income. But that change expired Jan. 1, which means people with high medical bills could see their taxes go up slightly in 2020.

Porter recently introduced a bill that would permanently lower the threshold for deducting medical expenses to 7.5 percent of income.

Politics drive perception

No matter what the tax bills say, it’s clear that many voters in Orange County, and beyond, view the tax cut through the prism of their politics.

Some 60 percent of Californians aren’t happy with the new federal tax plan, according to a poll released on Tax Day by the Public Policy Institute of California. But opinions are sharply divided along party lines. Some 81 percent of Democrats disapproving of the law, often pointing to smaller refunds, while 71 percent of Republicans support it, pointing out that, for now, it’s saving most people some money.

Locals critical of the new plan said much of their frustration stems from who benefited most from the tax cuts.

This year, people earning between $50,000 and $75,000 got, on average, an after-tax income bump of $870, while people who earn $1 million or more got an average bump of $66,600, according to an estimate from the nonpartisan Tax Policy Center. Even when adjusting those changes to reflect a percentage of income, the numbers favor the wealthy — with the $50,000 to $75,000 crowd getting a 1.6 percent raise while the $1 million and up crowd gets an after-tax bump of 3.3 percent.

And over time, the individual taxpayer side of the tax bill is scheduled to sunset. By 2027, about 57 percent of Americans will be paying slightly more in taxes than they do now, while people earning $1 million or more will be getting an after-tax raise of $23,000, according to the Tax Policy Center.

Leys-Campeau, who supported Porter in the 2018 campaign, said she’d be OK with paying more in taxes if the money was going toward things like education or mental health programs. She’s less happy if the money is spent on items that rate higher for GOP politicians and supporters, such as a border wall and traditional military spending, while companies spend the money on stock buybacks.

“I’m paying more in taxes and there are people that don’t need the tax break that are getting the biggest benefit.”

The irony of the fact that she’s now turning to a Democratic congresswoman in Orange County for relief from a GOP bill that increased her taxes and “exploded” the national debt isn’t lost on Leys-Campeau.

“The 2016 election just changed everything,” she said.

For now, Leys-Campeau, suspects she and her husband will have to contribute less to charity and cut back on saving for their kids’ college.

They’ll be saving, she said, for a property tax bill due later this year.

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MOORLACH UPDATE — Capitol Dances — May 1, 2019

May is starting with a bang. First, my most popular bill, SB 319, has received a rough reception by Senate leadership (see MOORLACH UPDATE — SB 319 and SB 689 Debate — March 12, 2019 and MOORLACH UPDATE — SB 319 and SB 689 — March 3, 2019).

Despite longstanding Senatorial customs and practices to hear and vote on all bills introduced by members of the legislature, my Autobahn bill has not received such courtesies. There may be legitimate occasions when bills are pulled by the author, delayed by request of a committee chair, and/or not heard in the committee process for any number of reasons. I’ve had a number of bills fall into this category and pulled from committee with my consent, including SB 640, which attempted to help our severely disabled population on the streets by attempting to redefine “gravely disabled” in the Lanterman Act (see MOORLACH UPDATE — Senate Bills 511, 584, 598, 496 and 640 — April 15, 2019). But at least I got a hearing on the bill.

Unfortunately, that was not the case with SB 319, where I attempted to engage my colleagues in a discussion about the future of our transportation system and to contemplate the world of automated and self-driving vehicles. Despite my best efforts to create a proposal that would meet all the stipulations of the Senate Transportation Committee’s rules and policies, I was not permitted to have the bill heard. In an effort to have the bill heard, we made last minute amendments at the recommendation of the Chair of the Senate Transportation Committee. But, it did not work. SB 319 is now a two-year bill, which means I cannot present it for a debate and possible vote until next year.

I understand the politics of being in the minority and I can do the math. I’m not complaining, but it’s a challenge to advance good public policy for my constituents and a strong plurality of center-right Californians in the state when the Senate policies are not applied equally and fairly. All the same, I submitted a piece to the Hoover Institution’s Eureka publication and it is the first piece below.

Ron Stein is back in the second piece below in Fox & Hounds (see MOORLACH UPDATE — Homelessness Discussion — February 4, 2019). I met with representatives of the California Fuels & Convenience Alliance yesterday and encouraged gas station owners to post the details of the components that go into the price of a gallon of gas voluntarily, without my having to reintroduce my 2018 transparency bill, SB 1074 (see https://moorlach.cssrc.us/content/senate-bill-1074-truth-advertising-gas-prices).

The California Globe provides a perspective on the Senate Energy, Utilities and Communications meeting yesterday morning in the third piece below. I’m the Vice Chair and the Chair informed me that he wanted to conclude the one-item agenda as quickly as possible.

There was one small problem. The author of the bill was not there. So, on camera, the Chair called him and asked where he was. “At home,” was the response. All done while the cameras must have been rolling and being broadcast around Sacramento on one of the many channels that carry legislative meetings live. Apparently, there was a personal emergency at the author’s residence that delayed him, but since no one responded to the reporter’s calls, that does not come through in the piece.

25th Anniversary Look Back

Chris Knap of the OC Register announced the biggest bombshell of the campaign with “Bergeson ends support of treasurer candidate — Politics: The state senator says she is uncertain of the accuracy of the challenger’s campaign.”

I had two campaign co-chairs, Congressman Chris Cox and State Senator and Orange County Supervisor candidate Marian M. Bergeson. With Bergeson’s withdrawal, I had to order all new stationery, something she never reimbursed me for. I personally pleaded with Sen. Bergeson, warning that she would be on the wrong side of the leadership curve when things imploded.

Bergeson would confess to me after the bankruptcy filing that every reporter would start their conversations with this question: “Why did you drop your endorsement of Moorlach?”

Moorlach said he was stunned and a bit mystified when Bergeson, R-Newport Beach, called him Monday and asked that he stop using her name.

The LA Times would weigh in on Bergeson’s move on May 1 in a political update column (see https://www.latimes.com/archives/la-xpm-1994-04-30-mn-52163-story.html).

For the last edition of the Look Backs, see MOORLACH UPDATE — SB 50 — April 29, 2019.

California’s Grapevine to Sacramento in Three Hours. . . in Your Car?

by John Moorlach

https://www.hoover.org/research/californias-grapevine-sacramento-three-hours-your-car

One of the great things about California is that we build the future. From Bill Hewlett and David Packard at the tail end of the 1930s, through Steve Jobs and Steve Wozniak in the 1970s, to all our great tech companies today, the Golden State has blazed a path of innovation. All of that was built first on imagination.

That’s what I’m doing with Senate Bill 319, the High-Speed Road. Here’s the idea: build four lanes in the middle of Interstate 5 and allow someone to drive at, say, an average of 100 miles per hour, thus being able to traverse the 305 miles between the base of the Grapevine (south of Bakersfield) to Sacramento in three hours.

And when they get to their destination, they will be driving their own car or a self-driving rental. The cost to build: $3 billion.

Already on these and other state freeways, drivers commonly drive 85 miles per hour just to keep up with the traffic flow—when it is flowing, rather than stopped solid or crawling at a snail’s pace because more lanes are needed.

Contrast that with the failed high-speed rail project, which was sold to California voters in 2008 as making a Los Angeles to San Francisco trip in two hours and 40 minutes, and whose construction costs have since ballooned, at last estimate, to least $77 billion.

But when you reached your destination, you’d still have to take a bus, rent a car, request an Uber ride, hop on a scooter, or walk for that proverbial last mile. What an exorbitant expenditure of the taxpayers’ money that doesn’t count the costs of the last mile.

The California “high-speed road” is inspired by Germany’s famed autobahn system, which long has boasted unlimited speed limits. As Travel Pulse notes: “The German Autobahn has always had a special place in the world’s imagination, with thoughts of driving down this motorway holding a pole position on many a motorist’s bucket list.”

Similar adventures would entice motoring tourists to drive the high-speed road, giving a boost to the California tourism economy.

Practical Reasons

Aside from the fun, there are practical reasons for passing SB 319. Most Californians have gotten car sickness driving in stop-and-go traffic on Interstate 5. Then there’s dodging in and out of traffic to avoid being crushed between giant semis.

The high-speed road has numerous advantages. It would move a lot of cars off the existing slower lanes, allowing traffic there to flow more smoothly—and faster, albeit not at the unlimited speeds on the designated lanes of the high-speed road. This will assist goods movement.

Because the high-speed road would be closed to trucks, drivers on the new lanes wouldn’t have to worry about being held up by a semi race clogging the two existing lanes.

Because vehicles wouldn’t be stalled in traffic, idling and spewing out fumes while going nowhere, running at efficient speeds should reduce greenhouse gases.

Safety also could improve. According to World Health Organization data, German road fatalities were 4.3 per 100,000 inhabitants per year in 2015, compared to 10.9 in the United States.

Germany’s Federal Highway Research Institute, called BASt, calculated the death rate on national rural roads was 0.22 per million kilometers, but less than half that, 0.09, on autobahns.

Then there’s Montana, which removed its speed limits on some freeways in 1995, then restored them in 1999. An analysis by the National Motorists Association found: “The safest period on Montana’s Interstate highways was when there were no daytime speed limits or enforceable speed laws.”

“The doubling of fatal accidents,” the association stated, “occurred after Montana implemented its new safety program; complete with federal funding, artificially low speed limits and full enforcement.”

Naturally, like the autobahns, the high-speed road would have to be highly engineered and drivers trained properly before driving on them. Those are details to be worked out through the legislative process.

Funding

As to how the state would finance the project, a start would be to shift funding currently going to high-speed rail. According to a November 2018 audit by California’s state auditor, the rail project “receives 25 percent of the revenues from the State’s cap-and-trade program, resulting in $1.7 billion as of December 2017.”

Shifting that money to the high-speed road until its $3 billion cost is met would do the job.

Then there’s the $3.5 billion for the rail project from the federal government from the Obama administration’s 2009 stimulus program. About $2.5 billion already has been spent, with around $929 million remaining. Because the money was contingent on a Los Angeles-to-San Francisco line—not the truncated system that Governor Gavin Newsom now is supporting—President Trump has demanded a refund of the full $3.5 billion in federal cash.

How about if California uses that remaining $929 million on the high-speed road, and the state and Trump call it a deal? As the president wrote in The Art of the Deal: “I like thinking big. I always have. To me it’s very simple: if you’re going to be thinking anyway, you might as well think big.”

Then the remainder of the project could be funded with cap-and-trade revenues.

Legislative Roadblocks

There is a roadblock: SB 319 purportedly goes against the policy of the California State Senate Transportation Committee, as it “will not consider any measure that contains provisions advantaging or directing the construction or funding of a specific transportation project subject to the statutory project selection process administered by the California Transportation Commission (CTC) and involving the Department of Transportation (Caltrans) and regional transportation agencies.”

Moreover: “The committee will not consider any measure that would result in changing a speed limit on a specific segment of highway or any class of highway without justification by an engineering and traffic survey (ETS).”

Let’s set the record straight. My proposal is outside this framework, with its own funding source, as described previously or through the potential use of tolls. The high-speed road is beyond Caltrans’s current, unimaginative State Transportation Improvement Program. It’s an innovative idea waiting for a green flag.

I’m advancing a new concept that would use new technologies. These could include not only self-driving cars, but also sensors built into the road to regulate speed, ensure proper lane changes, warn of hazards ahead, and even prevent drunk driving. For example, artificial intelligence could run ten cars a few feet apart at 100 miles per hour—more safely than current roads. There’s your train!

Another innovation might be to use the path cleared by the new high-speed road as a place that also could run Elon Musk’s Hyperloop, which would send individual “pods” carrying people at up to 700 miles per hour. In March, the Pennsylvania Turnpike Commission awarded a $2 million contract to study the feasibility of building a Hyperloop between Pittsburgh and Philadelphia, which is a distance of about 304 miles (almost 20 miles longer than the stretch of I-5 between Sacramento and Bakersfield).

Said Aaron D. Kaufer, a member of that state’s House of Representatives: “As new technologies and methods of transport are contemplated, Pennsylvania has a unique opportunity to once again be a leader and innovator.”

California Leads

The future is coming at us fast. Imagine using your cell phone to order a self-driving rental car. This personal rapid transit arrives and takes you up or down the Central Valley as you work or watch a video on your trip. The new designated lanes enhance this vision.

California should not cede to the Keystone State, or any other state, leadership in new transportation technologies. It’s time for Sacramento to start acting like an innovative company. We need transportation that’s faster and safer than what we currently have and based on artificial intelligence and other new technologies.

I want to keep California in the pole position.

California’s Legislature continues to dance around the Transparency pricing at the pump issue

Ronald Stein

By Ronald Stein

Founder and Ambassador for Energy & Infrastructure of PTS Advance, headquartered in Irvine, California

http://www.foxandhoundsdaily.com/2019/05/californias-legislature-continues-to-dance-around-the-transparency-pricing-at-the-pump-issue/

For decades, blue collar workers have been complaining about the high cost of fuels in California. And for decades the legislature has tiptoed around the issue of exposing the truth behind why the price of fuels in the state is so much higher than what the rest of the country regularly pays at the pump.

The current rhetoric the legislature is putting out is they can’t figure out why the cost of gas at the pump in California is noticeably higher than the rest of the country. Last month the Attorney General’s office called for an investigation of this phenomenon, and last week Governor Gavin Newsom joined the rhetoric. Yeah, like the AG and Governor are not in bed with the idea that the Oil and Gas industry is the go-to scape goat, the established bad guy, the Snidely Whiplash who can and will be blamed for any and everything that goes wrong today and tomorrow anywhere in the great State of California.

They are now fueling the idea, pun intended, that the oil companies are filling their pockets with the extra money California consumers experience at the pump. The local media are unknowing co-conspirators in this ruse.

Both the AG and Governor appear to have short memories. As early as last year at an April 23, 2018 hearing before the State Senate Committee on Business, Professions and Economic Development. I testified in support of Senate Bill 1074 (John Moorlach) called “Disclosure of government-imposed costs,” which would have required gas stations to post near each gas and diesel pump a list of cost factors, to include federal, state and local taxes, as well as costs associated with the state’s environmental rules and regulations.

The Democrat controlled committee was adamant they did not want the public to see all the costs included in the posted pump price, and killed the Bill that would make gas pricing transparent, from future consideration and would have eliminated the need for an investigation in the first place. Today, we’re hearing the same concerns that Senate Bill 1074 (Moorlach) would have remedied. And the dance continues.

The Supermajority in the legislature are purposely hiding taxes and fees from California residents, keeping them blissfully ignorant of the many taxes and regulatory costs that drive up prices, to the point that Californians continue to pay almost $1.00 more per gallon of fuel than the rest of the country. Those taxes and fees include:

a) The federal fuel tax per gallon;

b) The state fuel tax per gallon;

c) The state sales tax per gallon;

d) Refinery reformatting costs per gallon;

e) Cap and trade program compliance costs per gallon;

f) Low-carbon fuel standard program compliance costs per gallon; and

g) Renewable fuels standard program compliance costs per gallon.

That’s a lot of taxes and costs. The difference between those “fixed” governmental costs from taxes and environmental regulations would obviously explain the total costs the manufacturers of those fuels charge the vendors, who add their markup, and the actual price the consumer experiences at the pump.

Cap and trade went into effect in 2013, following the earlier Low Carbon Fuel Standard and the Renewable Fuel Standard. Now the Governor can’t seem to figure out why the prices jumped considerably. The people who make the laws and spin the tales decide the angle of the truth they want you to hear. Besides, they don’t want to have to explain what cap and trade is for the hundredth time after President Trump has literally designated it a bad word.

As the Cap & Trade and Low Carbon Fuel Standard Programs kick into higher gear in the coming years, more costs onto fuels are projected by 2030 which may ADD another dollar or two to the per gallon fuel cost consumers will pay at the pump.

Practically every other product we buy, clothes, computers, cars, furniture, office supplies, books, etc. come with the price listed on the tag, with the taxes then clearly added to the receipt.

Shouldn’t that courtesy be extended to the motoring public? Of course, it should. SB 1074 would have required that information be included in the price of the fuel we buy and be posted at the pump but the Democratic supermajority isn’t having any of that, now or in the future.

The high fuel taxes impact not just drivers, but almost everything in our economy, such as the food carried to grocery stores, materials to housing construction and clothing to children’s stores. Even Amazon.com and other online retailers will charge more for shipping as their costs rise.

Especially hurt by the high cost of fuel are the working poor, who often must commute an hour or more inland because coastal housing is so expensive. This demographic is the key constituency of the Democratic Party yet they are being left out in the cold air of disinformation.

It’s no wonder California continues to suffer the highest percentage of people in poverty, homeless and welfare crisis that’s so acute it shocks the world.

Senator John Moorlach’s bill in 2018 would have paved the way for motorists to find out what’s really going on but the Democratic supermajority’s dance card is full and fuel price transparency for the motoring public is not on it. This current spate of lawmakers will jostle around the idea of the need for full disclosure again and again when the issue arises, but any real action will be avoided until Democrats co-sponsor a reintroduced bill from Senator John Moorlach to force transparency of pricing at the pump bill that will give the blue collar workers the details of why Californians pay so much for fuel.

Sen. Stern Forgot to Attend Hearing on his Special Privilege Bill

Confusion over what this bill was really about was only part of the story

By Katy Grimes

https://californiaglobe.com/legislature/sen-stern-forgot-to-attend-hearing-on-his-special-privilege-bill/

An apparently unnecessary bill on “weatherization-eligible measures for low-income customers” left many in the Capitol scratching their heads Tuesday. But even stranger is that the bill’s author forgot to show up for the hearing on a bill that he requested a special privilege on.

Sen. Henry Stern

SB 766 by Sen. Henry Stern (D-Malibu) was gutted and amended and referred to the Senate Energy, Utilities and Communications Committee after all the other bills for this cycle in the house of origin were already heard.

The scoop on this is the fact that the hearing was taking place at all because so many other bills were already sidelined. But Senate leadership made this special one-bill hearing happen (highly unusual), at the author’s request, yet he didn’t even show up to present the bill Tuesday.

The committee chairman and others tried calling him, only to find out that he was at home, Capitol sources said.

So Sen. Bob Hertzberg (D-Los Angeles) stepped in, presented the bill, and answered the questions in the debate.

What is SB 766 about?

Andrea Deveau, a Senior Vice President with government relations firm Strategies 360, was the only witness in support of SB 766, representing Recon Dynamics, which she described as “a technology company that stands at the nexus of technological support and modernization, providing asset tracking technologies that enable utility companies to operate more efficiently.” Confused faces stared at her from the hearing room dais.

Deveau said SB 766 “opens the door for the state to leverage low-income weatherization programs to utilize water efficiency technologies to increase savings.”

Sen. Steven Bradford

“I’m still at a loss on what this bill actually does,” said Sen. Steven Bradford (D-Gardena). “Can someone please explain?”

“The bill will improve weatherization programs,” Deveau said. She said it directs the California Energy Commission and Public Utilities Commission “to consider cost effective implantation of weatherization measures in low-income dwellings… it is an extension of a current program.”

California already requires an electrical or gas corporation to perform home weatherization services for low-income customers if the CPUC determines that a significant need for those services exists in the corporation’s service territory, the bill analysis says.

Bradford wasn’t satisfied. “I understand, but poor folks, just on the nature of being poor, always conserve water,” he said. “They have the lowest usage in the state, so I just don’t understand what we are expanding from. Is there a penalty if they don’t save?”

Deveau said there is no penalty, but rather “sort of communication with smart meters, which they already have installed.”

“The bill also says attic insulation, caulking, weather stripping, low flow faucets,” Hertzberg offered. The bill analysis specifies: “attic insulation, energy efficient refrigerators, energy efficient furnaces, weather-stripping, and other measures.”

“I too am a little confused,” said Sen. John Moorlach (R-Costa Mesa). “I’m curious — you mention water efficient technologies to reduce energy, and you mention low-flow shower heads. I’m just trying to figure out which are conservation measures that result in savings. Is it like a new water heater that uses less electricity?”

Real bill, spot bill, or something else going on?

The hearing went downhill from there, making it apparent that the bill is really not a serious bill. Perhaps it is a spot bill, to be gutted again and used at a later date for some other purpose. To say that the hearing was odd is an understatement.

California Globe contacted Andrea Deveau to get more detail on the bill and her client’s interest. We did not receive a response.

Additionally, I do not find Recon Dynamics or Strategies 360 on the California Secretary of State lobbyist employer page.

California Globe also contacted Sen. Henry Stern’s office to ask for more detail on the bill, and to see if Stern was okay since he missed the hearing. His office called back to ask what the article was about. I again explained that I watched the hearing and needed more information from the author on the bill, and inquired again about Sen. Stern. His office did not respond again by the close of business.

California Globe contacted Sen. Bob Hertzberg’s office to inquire about why he was asked to stand in for Sen. Stern. We did not receive a response.

California Globe also called the Senate Committee on Energy, Utilities and Communications committee consultant to ask if they received a letter from Sen. Stern authorizing Sen. Hertzberg to present SB 766 in his stead, as is standard protocol. The committee consultant responded and told me I would need to call Sen. Stern’s office and ask him if he sent an authorization letter. She said her understanding of the rules “don’t require another member to request replacement by letter.”

However, the Standing Rules of the Senate state:

“A bill may not be considered in the absence of the author without his or her consent, except that a bill may be presented by the author’s representative who is authorized in writing.”

But that’s only part of the story. The fact that a Senator forgot to show up for a hearing on a bill that he requested a special privilege on, and still was able to get it passed, is astounding. SB 766 passed unanimously.

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MOORLACH UPDATE — SB 50 — April 29, 2019

One of the more controversial bills this year is SB 50 by Sen. Scott Wiener. What has made it all the more interesting for me is that last December I decided to get out of my comfort zone and I signed on to be a coauthor (see MOORLACH UPDATE — Committee Season Has Started — April 3, 2019, MOORLACH UPDATE — Really Addressing Housing Goals — January 29, 2019, and MOORLACH UPDATE — 2019-20 Session Underway — December 4, 2018).

Sen. Wiener and I have a track record of working together on legislation, SB 1004 in particular (see MOORLACH UPDATE — Goodbye to my Dad — March 23, 2019 and MOORLACH UPDATE — SB 689 – Needle Exchange — March 1, 2019, MOORLACH UPDATE — Fire Prevention Not Embraced — November 13, 2018, MOORLACH UPDATE — Youth Mental Health Care — September 15, 2018, MOORLACH UPDATE — SB 1004 and CIRM — September 10, 2018, and MOORLACH UPDATE — Joint Author Details — July 7, 2018).

I believe Orange County is doing a great job of building new housing around job centers, especially in my District. So I came onto the bill with a few stipulations, one of those being that there would be no funny labor agreement provisions that always makes housing more expensive for prospective homeowners. I also reserved the right to pull my name off of a bill if it starts to head in what I believe is the wrong direction.

So far, I’m pleased with the conversation and the amendments, inasmuch as I’ve had a chance to digest what happened last week when both SB 50 (Wiener) and SB 4 (McGuire) were essentially combined into a super-housing bill.

The good news is that I have since been joined in support of this bill by some very credible players, like the California Chamber of Commerce, the California Realtors Association, and the California Building Industry Association, to name a few.

The bad news is that this bill would impose new zoning requirements on cities, which is why the bill is opposed by the League of California Cities. My last UPDATE should confirm that I am firmly in support of local control (see MOORLACH UPDATE — The Week That Was — April 26, 2019). I have been consistent on this position for a number of issues in the 4 years I’ve been in the Senate. Local control is largely the first comment I make when I’m debating any number of measures before me in committee or on the Senate Floor.

So, why am I supporting this bill? First, Orange County does not have close to the transit circulation activity that SB 50 mandates for zoning around bus stops. This social engineering effort to connect individuals to their workplaces has been a failure and bus ridership continues to decline. I do not believe one bus stop in the OC qualifies under the current proposed definitions in this legislation. So Orange County’s communities should not be impacted in this regard.

Second, the LOSSAN Rail Corridor used by Metrolink and Amtrak has some ten train stops in Orange County and they have been active in providing higher density housing within a half-mile radius. Just look at the Santa Ana Train Station for an example. And this has been done without a stick from the state. We should encourage more of this kind of thinking and problem-solving.

Third, except for the Balboa Ferry, Orange County has no industrial ferry stops.

Fourth, housing adjacent to existing neighborhoods that abut job rich areas will have to meet existing building code requirements, with the exception of an additional story.

All to say that the big geographical areas that will be impacted by SB 50 are Los Angeles and the Bay Area. And they believe in transit, a social engineering effort that is failing. But, the emphasis on trains resulted from pushing housing for downtown employees out into the distant suburbs.

For years, we’ve been dealing with the out-migration of young families from Los Angeles to Orange County that had to “drive-to-qualify” for housing. That drove up prices for Orange County, which was more of a bedroom community and hospitality destination than an industrial center. Los Angeles and the Bay Area have built programs that attracted people to the area, but restricted their ability to find reasonable housing accommodations and decent transportation infrastructure because of prices, fees and/or regulations.

Fortunately, Orange County used its self-help Measure M sales tax revenues and built lanes, not trains. And with the shared economy, an Uber or Lyft ride is more reliable and efficient than taking the bus or train, more than making up for the extra cost.

More importantly, as a Republican, I have a seat at the table in working on this bill. I went to all of the hearings last year that Sen. McGuire held for what would become SB 4, which would streamline the approval process for multifamily or transit-oriented development projects. So, I have an ownership stake and am a respected and active participant in providing a leadership role by someone in Orange County on this critical topic (also see MOORLACH UPDATE — Mediating Huntington Beach — February 8, 2019).

It also gives me the right to request an amendment if the cities in my District have any specific suggestions that I can bring forward. After all, if Marin County can continually weasel its way out of housing mandates time and again, then why should Orange County be held to a higher standard? If Sacramento is going to the change the rules, I would remind my colleagues of another principle that I hold, and that is “no better,no worse.” This should set you up for the LA Times piece below.

25th Anniversary Look Back

On Sunday, April 24th, 1994 Chris Knap provided the lead, top-of-the-fold headline for the OC Register‘s Metro section, with “O.C. treasurer’s race stirs markets — Finance: A political challenger has raised doubts about Robert Citron’s aggressive investment strategies, making some investors nervous.”

The piece extensively quoted Irvine investment chief Jeff Niven, who encouraged the city to borrow $64 million to invest in Citron’s investment pool, and was bent out of shape by my concerns. He would be fired from his position after the county filed for Chapter 9 bankruptcy (see https://www.sfgate.com/news/article/Fallout-From-Orange-County-Bankruptcy-Affects-3035502.php).

County Administrative Officer Ernie Schneider exploded in anger last week when asked about the effect that the challenge to Citron’s strategies could have on Orange County’s financial reputation.

Mr. Schneider was replaced shortly after the bankruptcy filing and would have difficulty finding similar positions for the remainder of his life.

“What am I supposed to run on?” Moorlach asked. “Full disclosure by Citron will cause no harm if in fact the investments are as solvent as he has represented them to be,” Moorlach said.

The interview would cause me to send Chris Knap a letter:

“The central thought in my mind is: who is being more irresponsible? Mr. Citron for investing in reverse repurchase agreements and derivatives? Or myself for questioning those policies? Or the participants for not asking enough questions themselves?

“Time will tell. But Mr. Citron would be transferring responsibility if he tries to hold one candidate responsible for his poor investment judgment. And to assist in that insinuation would also be an exercise in poor judgment.”

If the headlines use of the word “aggressive” didn’t say enough, the closing argument nailed it:

“As an outsider, I have misgivings that school districts and others are permitting their money to be leveraged in this fashion. You’re not supposed to be playing games with other people’s money,” said Zane Mann, author of the monthly California Municipal Bond Adviser.

Time did tell. For the last two editions of the Look Backs, see MOORLACH UPDATE — The Week That Was — April 26, 2019 and MOORLACH UPDATE — SB 584 Goes To Natural Resources — April 21, 2019.

High-profile California housing bill

clears hurdle after tense debate

over local control

By LIAM DILLON

https://www.latimes.com/politics/la-pol-ca-senate-bill-50-changes-20190424-story.html

High-profile housing legislation to allow mid-rise apartment construction near mass transit across California advanced in a state Senate committee Wednesday after two lawmakers reached an agreement that would limit its effect on smaller counties and along the coast, but eliminate zoning that allows for only single-family homes in much of the state.

Under changes to Senate Bill 50, communities in Los Angeles, San Francisco and 13 other counties with populations larger than 600,000 would have to allow four- to five-story apartment buildings near rail lines, and smaller apartments and townhomes in wealthy neighborhoods near job centers.

But in smaller counties, including Marin, Santa Cruz and Santa Barbara, cities would be required to permit height increases near rail one story taller than existing zoning as well as fourplexes in many single-family-only areas. Neighborhoods along the California coastline also would not have to permit buildings as tall or construction as dense as required further inland.

The deal is a concession to Sen. Mike McGuire (D-Healdsburg), the chairman of the Senate Governance and Finance Committee, who represents smaller coastal counties, including wealthy communities in Marin County that have a history of pushing back against low-income and higher-density development.

McGuire had been critical of SB 50 for not taking into account differences between large and small cities, and he authored less aggressive legislation to increase height limits and densities. As part of the agreement, McGuire withdrew his bill and supported SB 50.

“A one-size-fits-all approach doesn’t work for every community in California, and the strategy of ‘no’ no longer works,” McGuire said. “No matter if you are a large city, a small city, an urban county, a rural county, everyone has to do their part to be able to combat this crisis of lack of affordable housing.”

Sen. Scott Wiener (D-San Francisco), the author of SB 50, said the changes made Wednesday would broaden the bill’s support in the Legislature. He emphasized that the new language would make it easier to build fourplexes on parcels zoned for single-family homes across the state.

“I think we have a very, very strong agreement on SB 50 that will help address the deep housing crisis that California faces,” Wiener said.

Negotiations over SB 50, which continued through the hearing Wednesday, revealed the difficulties in trying to craft statewide legislation that tackles zoning issues, which are largely the concern of cities and counties, and also don’t neatly fall along partisan lines.

Two Republican state senators, John Moorlach of Costa Mesa and Jim Nielsen of Gerber, support the bill, praising its promise to increase home building. Democratic Sen. Bob Hertzberg of Van Nuys spoke in opposition, saying the legislation was too complicated to move forward without a deeper study of its effects on neighborhoods.

Under the previous version of the bill, more than 40% of the developable land in the city of Los Angeles would have faced increases to density of some kind, according to a city study. In addition, wealthy suburbs such as Palo Alto and others in Silicon Valley along with affluent Marin County enclaves would have had to allow apartment construction in many single-family-only neighborhoods.

Though Wednesday’s revisions don’t appear to make dramatic changes to those rules in Los Angeles and Silicon Valley, the amended bill would make less of an impact in Marin County.

Lawmakers have faced substantial criticism for excluding Marin from some of the state’s strictest housing mandates. Two years ago, legislators allowed the county to place additional restrictions on development beyond those permitted in other regions. The legislation authorizing that change was inserted into a bill tied to the state budget and not required to go through the regular committee process.

McGuire, who represents Marin and Sonoma counties among other Northern California communities, said suburban and rural counties should be treated differently in housing policy.

“What works for downtown L.A. will not work for downtown Santa Rosa,” McGuire said. “More housing, more affordable housing, will be built under this bill respecting the population at hand.”

Despite the deal, opposition to the bill remains strong, predominantly from local governments that would lose some power to shape their communities and advocates concerned about gentrification and displacement.

David Reyes, planning director for the city of Pasadena, testified at the hearing that cities often spend significant time trying to engage residents before allowing large-scale changes to zoning, a process that wouldn’t happen under SB 50.

“What cities will do in response to a bill like this is sue the state,” Reyes said. “What cities will do is have chaos with respect to the democratic process.”

Wiener’s bill would delay implementation in neighborhoods at risk of gentrification for five years to allow those communities to develop their own plans to increase density. All new construction for projects larger than 10 units would have to set aside a portion for low-income residents. And developers who hope to take advantage of SB 50 would be prohibited from demolishing homes on properties where tenants have lived for at least seven years.

Still, Shanti Singh, a spokeswoman for Tenants Together, said the onus for enforcing those anti-demolition provisions would probably fall on renter advocates who don’t have the resources to ensure that they’re followed.

“We believe that the solutions to the housing crisis must be led by those who are victimized,” Singh said.

SB 50 continues to face a long road to passage and may not succeed if other housing bills don’t garner support.

Sen. Jim Beall (D-San Jose) voted for the legislation Wednesday but said he would only do so in the future if bills to increase spending on low-income housing and protecting tenants also advance.

“If we don’t have a package of this bill and the other bills, I don’t think this is a successful effort this year,” Beall said.

SB 50 has to clear the Senate by the end of May and the Legislature by mid-September. Gov. Gavin Newsom has yet to take a position on the bill.

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