MOORLACH UPDATE — Booming Struggles — July 13, 2019

The Commentary section of tomorrow’s Sunday OC Register is expected to have the editorial below, which is the first piece provided. It seems to be channeling what I’ve been communicating (see MOORLACH UPDATE — Biggest Budget, Biggest Deficit — June 10, 2019). For more on the CalPERS meeting that is referred to, go to MOORLACH UPDATE — OC’s Newest Landmark Plaque — September 20, 2017.

The second piece below is by the Associated Press and is in the Reading Eagle. It provides the news of Gov. Newsom’s appointment of Marybel Batjer as the new president of the California Public Utilities Commission (CPUC). Ms. Batjer recently testified before a Senate Budget & Fiscal Review Committee meeting this year on the subject of the DMV. She made a good impression.

I have stated my concerns about the size of the CPUC and how it has become a massive and ineffective bureaucracy that is slow moving and reactive, versus proactive (see MOORLACH UPDATE — Wildfire Cost Reverberations — May 9, 2019).

Where was the CPUC in its encouragement to PG&E to harden its assets in a more expeditious manner? Where were the fire maps and why has it taken more than 8 years to complete them (see MOORLACH UPDATE — Snopes is Fired Up — November 14, 2018))?

Even AB 1054 hints at some modifications to the CPUC. This bill, signed yesterday by the Governor, created the California Wildfire Safety Advisory Board that will "currently" be housed within the CPUC (see MOORLACH UPDATE — AB 1054 and Investor-Owned Utilities — July 9, 2019)..

I wish Ms. Batjer all the best. I just know that, after receiving major negative State Auditor reports on departments, such as a scathing one on the CPUC from 2016 (see, nothing much happens to improve the situation. We need a "change agent" and I hope she can provide a model for other bureaucrats in Sacramento.


Despite booming revenues, California struggles with debts


The California Public Employees’ Retirement System reported an annual return on investment of 6.7 percent on Thursday – lower than its goal of 7 percent, but still a decent return rate. Meanwhile, California cities have seen a booming real-estate market, with property tax windfalls soaring by more than 6 percent in many areas. California’s budget is in surplus territory, with the governor earmarking billions of dollars to pay down state debts.

By any measure, this is good news, yet California cities and counties are struggling to make ends meet. They are facing something known as service “crowd out,” whereby their expenses are consuming so much of their budgets that there’s a dwindling amount left to pay for fundamental services. Many California public-school districts are likewise concerned about their financial straits.

Part of the problem is inherent in all governments, which tend to spend money until they run out of it. But there’s a lot more than that going on here. As columnist Dan Walters wrote in October, “The reason is that even with strong property tax gains, local governments’ pension costs are growing faster than revenues, thus putting the squeeze on their budgets.”

Nothing has changed since last year, except that the California Supreme Court has refused to revisit the “California Rule.” That’s the doctrine that public employee benefits cannot be pared back even going forward. Without a change in the rule, cities are largely helpless to rein in these costs. They can do little more than raise taxes and cut services.

Whenever he released a budget, former Gov. Jerry Brown featured big charts showing that recessions are often around the corner. He was reminding lawmakers not to pass permanent spending programs because they can go upside-down if the economy goes south. Gov. Gavin Newsom’s budget has record spending, but he, too, has boosted the state’s rainy day fund to buffer against a recession.

None of those warnings or savings, however, will cushion the blow for the state’s pension systems if the stock market starts to fall. CalPERS only has 70 percent of the funds it needs to fulfill all of its participating agencies’ pension promises. A 6.7-percent rate of return would be fine under most circumstances, but not when it’s already in a deep hole. And consider that the stock market has been soaring. State pension funds are in dangerous territory after years of unprecedented economic growth. What happens in a serious downturn?

Back in 2017, California city officials made the trek to Sacramento to speak to a CalPERS hearing to support a proposal by Sen. John Moorlach, R-Costa Mesa, to require that the pension fund provide more actuarial data about pension costs. The idea was shot down, but city officials talked about their constant budget cut backs as they try to pay the growing pension and medical tab for public employees. One official even raised the specter of municipal bankruptcy.

Despite their pleas, pension reform hasn’t captured serious attention in the Capitol. It’s ironic that state officials, who see themselves as the Trump resistance, are increasingly dependent on the Trump economy to keep bailing them out. But what goes up must come down eventually. It would be nice if state officials dealt with that possibility before the pension debt hits the fan.

California governor taps new top utilities regulator

California Gov. Gavin Newsom names new top utilities regulator to California Public Utilities Commission


SACRAMENTO, Calif. (AP) — California Gov. Gavin Newsom said Friday he is tapping Marybel Batjer, a veteran of state government, to serve as the state’s top utilities regulator.

Batjer will serve as president of the California Public Utilities Commission, overseeing power companies and other services ranging from water systems to telecommunications and limousines.

The commission has a particularly daunting job as the state grapples with big goals for reducing carbon emissions and seeks to curb the threat of wildfires caused by electric utility equipment. Power lines have sparked catastrophic fires in recent years and the state’s largest electric utility, Pacific Gas & Electric Corp., has filed for bankruptcy in the face of billions of dollars in claims for damage as well as questions about the company’s neglect of its aging equipment.

Newsom said he is confident Batjer will challenge utilities to embrace reforms. But plenty at the state Capitol will be watching to see if Batjer can also reform the commission itself, which critics say is too slow and inefficient.

Batjer is currently secretary of the California Government Operations Agency. Former Gov. Jerry Brown appointed her to that post in 2013. She is a veteran of state government, previously working as cabinet secretary to Gov. Arnold Schwarzenegger and as chief of staff to Nevada Gov. Kenny Guinn. Batjer worked in the administrations of Presidents Ronald Reagan and George H.W. Bush, and was later vice president for public policy at Caesars Entertainment Inc.

Batjer declined to comment for this story.

In Newsom’s administration, she is quickly gaining a reputation as a person to call when dealing with big bureaucracies.

Newsom, who took office in January, named Batjer earlier this year to head a strike team focusing on the state’s beleaguered Department of Motor Vehicles.

"We’re very encouraged that the governor has chosen someone with a strong background in managing and transforming large government institutions. We think the PUC needs that right now," said Mark Toney, executive director of The Utility Reform Network, an advocacy group based in San Francisco.

Legislators are already skeptical about the commission’s capacity to effectively oversee the services it regulates.

Sen. John Moorlach, a Republican from Costa Mesa and vice-chair of the Senate Energy, Utilities and Communications Commission, said he hopes Batjer will be a "change agent."

"I think there’s some signals this Legislature — and certainly this legislator — would like to see the (commission) trimmed down," he said.

Batjer will succeed Michael Picker, who announced in May that he would retire after almost five years in the post.


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MOORLACH UPDATE — Marking to Market — July 12, 2019

The Epoch Times used a quote of mine from earlier this year concerning the integrity of the state’s voter rolls (see MOORLACH UPDATE — Casting Shadows — January 4, 2019). I believe Orange County’s rolls are meticulously maintained by Registrar of Voters Neal Kelley. However, the piece below does raise concerns about some of the other 57 counties.

25th Anniversary Look Back

Twenty-five years ago, I wrote a letter to Assemblyman Curt Pringle with legislation suggestions. It was several pages long, so I’m providing it in segments. For the first segment, covering city investment policies, see MOORLACH UPDATE — Housing and Banking — July 4, 2019.

The second segment of my correspondence to Assemblyman Pringle focused on marking to market, as accounting misstatements occurred due to not accurately representing the actual market values in the audited financial statements of the County of Orange. The Wall Street Journal addressed this issue during the campaign(see MOORLACH UPDATE — Senate Bills 511, 584, 598, 496 and 640 — April 15, 2019). Here are three pertinent paragraphs from The Wall Street Journal piece:

Unlike mutual funds, pension funds, hedge funds and most other money managers, who have to recognize losses and gains in their portfolios as market prices move, Mr. Citron says he doesn’t have to mark his portfolio to market values.

“I can hold to maturity,” Mr. Citron says. “We don’t believe in taking paper losses and paper profits.” Hedge funds are unregulated private investment partnerships that wager huge sums in global currency, stock and bond markets in search of quick profits.

Mr. Moorlach says he isn’t impressed by Mr. Citron’s comment. “Mutual funds and everyone else marks to market, and if I’m county treasurer, I will mark investments to market,” Mr. Moorlach says. Not marking to market is just a way of concealing losses, he charges.

The Government Accounting Standards Board (GASB) would issue Statement 31 shortly after the County’s Chapter 9 bankruptcy filing to make sure the practice of reflecting accurate values of investments in comprehensive annual financial statements was observed (see MOORLACH UPDATE — GASB — July 21, 2011, MOORLACH UPDATE — We’re Out! Sort Of — July 2, 2017, and MOORLACH UPDATE — Carpool Christmas — December 6, 2014).

For more on GASB 31, see I take ownership of this GASB pronouncement, as I initiated the need for its issuance.

The second portion of the letter was extremely prescient (see sentences in bold) and is provided below:

In Orange County, the Treasurer has converted his Pool from what should be a money market mutual fund to an intermediate-term, highly leveraged, bond mutual fund. Any knowledgeable investor knows the amount of lost value that has recently occurred to these types of investments.

Awkwardly, Orange County’s Pool still reports like a money market fund. A money market has a net asset value of $1.00 per share. This makes a money market fund similar to a bank account. However, a mutual fund’s net asset value is based on the day’s closing values of the investments owned at the end of that day by the fund. We call this exercise “marking to market.”

The Orange County Pool has approximately $22 billion in cost basis purchased investments per its MoneyMax portfolio listing. The bond market has been crashing since mid-October of 1993. It is safe to say that his portfolio is down at least five percent and is probably down ten percent. This translates into a $2.2 billion book loss.

The pool has approximately $7.3 billion in participant contributions, i.e. funds being invested by the County for some 180 municipalities. The difference between the $22 billion and the $7.3 billion represents some $14.7 billion in borrowing (or leverage). Accordingly, the participants no longer have $7.3 billion in market value but have $5.1 billion. This represents a thirty percent loss on their investments (so go the joys of leveraging up three times.)

What makes the scenario interesting is that the Treasurer does not mark to market. If Tustin wants their $4 million investment, they get $4 million back. If the fund marked to market, Tustin should only have received about $2.8 million. By not marking to market, the Treasurer is obfuscating the true losses and is setting up the County for a major financial fiasco. Let me elaborate.

Should the City of Costa Mesa pull out its $14 million in funds, it would lose no principal. However, it received $4.2 million too much. And that distribution has to be borne by the remaining participants in the Pool. This is theoretically possible, but statistically improbable.

The treasurer has to hope for two things:

1. That interest rates return to their recent historical lows. Unfortunately, this is unlikely based on recent inflation concerns, declining values of the dollar, and increasing employment trends. (Rest assured that I personally hope they do go down soon for our County’s sake.)

2. That all the participants stay in the Pool and make no withdrawals.

During my campaign our Federal Reserve Board Chairman, Alan Greenspan, increased interest rates four times. I’m sure this caused Mr. Citron more consternation than my challenging him did. But to keep participants in the Pool he had to publicly vilify the City of Tustin for its withdrawal. Needless to say, we caused a lot of grief for Mr. Citron because we were exposing his financial debacle to the public.

Any experienced investor would see the problem and get their funds out intact. Doing so would cause the pool to implode as investments would have to be sold below cost, thereby causing true losses. Since the Pool doesn’t mark to market, who would eventually bear the losses? The other participants? They never agreed to that arrangement and law suits would start flying. The County of Orange? This would seem to be the case, but how could they fund losses of such a magnitude? The State of California? This could be the financial guarantor of last resort, but where would it get the money?

As you can see, the taxpayers become our speculative Treasurer’s bad investment decision guarantors. The County of Orange would be reeling for decades as it tried to replenish the lost funds.

That is why I stated in my campaign that I would mark to market immediately after being elected, should that occur. It would force the participants to take an immediate loss and give them three choices:

1. Keep their funds in the Pool in the anticipation that interest rates would go back down and, thereby, restore the market value of the portfolio up to their cost basis. Or
2. Remove their funds now at a significant loss only to their municipality and no others. Or
3. Do something in between by holding until market conditions improved to recoup some of their book losses.

The State of California needs to approve legislation that requires County Pools structured like Citrons to be “marked to market.” And in Citron’s case it needs to be enacted retroactively.

Now that we are on the topic of GASB and their issuing pronouncements after the damage has already been done, let me introduce other statements they’ve issued that are important (but late). Not that I can claim ownership on them, but I have been agitating those involved with GASB over the last two decades.

GASB Statements 43 and 45 started the addressing of Other Post Employment Benefits (OPEBs) (see Unfortunately, it only required the inclusion of retiree medical liabilities for the shortage in the annual required contribution amount, if any.

GASB 68 finally required the inclusion of defined benefit pension plan liabilities on the balance sheets of municipalities (see This mandate occurred some three decades after the for-profit industry was required to do so by the Financial Accounting Standards Board (FASB). This became effective a few years ago.

GASB 74 updated GASB 43 and 45 by requiring the entire OPEB liability to be reflected in the balance sheet (see It became effective with the June 30, 2018, audited financial statements. The implementation may be difficult, as I am still waiting for the Comprehensive Annual Financial Reports for many cities, school districts, counties, and states.

I have received all of the CAFRs for California’s Community College Districts (see MOORLACH UPDATE — Recognizing Movement — June 7, 2019). My rankings for 2018 will show you how significant and material this pronouncement has been on a number of the Districts.

GASB 87, addressing lease accounting, will be the next major pronouncement to impact the for-profit and municipal industries. It requires capitalizing leases. Let me give you an example, instead of just showing an auto lease payment in the expense section of the income statement, in the future GASB will require reflecting the auto in fixed assets section and the supposed loan (lease) in the liability section.

I’m not sure I agree with GASB 87. And, industry is having a difficult time adjusting to it, as this will also be a significant modification to their balance sheets. Two bills are moving through the Legislature to address this major change. I have become a coauthor on both to assist the authors on the technicalities as they move through the process. They are AB 412 by Assemblywoman Sharon Quirk-Silva and AB 295 by Assemblyman Tom Daly.


Nearly 1 Million Californians Registered to Vote Are Ineligible, Says Non-Partisan Group


A non-partisan group has reported that there are still several counties in California where the number of registered voters is greater than the number of eligible citizens, with the total nearing one million people.

The Election Integrity Project California (EIPCa) stated in a release on July 8 (pdf) that if voter problems are not promptly addressed by state officials, fraudulent election activities may continue to haunt the state.

Using the state’s own data on active and inactive status registrants, the organization found that eight counties have not cleaned up their inactive registrant lists, despite a 2018 legal settlement that requires California counties to properly maintain their voter rolls and remove inactive voters according to federal law.

According to EIPCa, there are currently 991,411 people registered who are ineligible to vote. This is a staggering increase of 928,035 persons over the group’s 2017 report.

As the number of names with inactive status continues to grow, the organization noted that these excess registrants open up the doors to fraud.

Voter registration rates that exceed the eligible population range from 103% in Ventura, San Benito, and Plumas counties to 115% in San Diego. Other counties include San Mateo at 104%, Solano and Santa Cruz at 107%, and Los Angeles at 109%.

Just months ago, the state’s Department of Motor Vehicles (DMV) acknowledged making 105,000 registration errors, with at least one noncitizen claiming the DMV improperly added him to the voter rolls.

In an interview with The Epoch Times, EIPCa Chief Analyst Ellen Swensen confirmed that the DMV’s practices still need improvement, although the EIPCa doesn’t have a way of finding out who is or isn’t a citizen by just looking at their voter registrations.

In addition to the errors made by the DMV, she said, people who are ineligible to vote might also be getting registration forms from people who are paid to register voters and who might be unaware of the law.

“This can harm [immigrants’] future chances of gaining citizenship, so it’s important that non-citizens become educated about this,” she said. Furthermore, there are “thousands of duplicated [and ineligible] registrations” that can be used during elections “with or without the person’s knowledge.”

Recently, nine people were accused of offering cash or cigarettes in exchange for forged signatures on voter registration forms and petitions in Los Angeles. Prosecutors claim the group was active during the 2016 and 2018 election cycles, targeting the homeless to help them register fictitious persons.

EIPCa says this type of abuse may have been enabled by the state’s voting laws.

“Because California does not require an ID for a person to vote, and because some counties include the names of inactive registrants on their publicly-displayed Election Day rosters, anyone can claim to be the inactive registrant and receive a ballot,” Swensen said.

“All that is required is an oath (verbal or signed) that they are who they say they are.”

Swensen said officials need to do more to fix this problem.

“EIPCa would like to see counties become more proactive with list maintenance by mailing a card to every registrant on the list, not just those with inactive status,” she explained.

“This would allow all registrants to update their information and would, for those who have moved, died, etc., begin the lawful [process of inactivation and cancellation]. This would go a long way to reduce the almost 1 million ineligibles currently on CA’s list.”

In early 2019, the Sacramento Bee reported that Secretary of State Alex Padilla’s office was investigating whether noncitizens had voted in the June 2018 primary. At the time, Padilla admitted that voters were losing their trust in the system due to registration errors, echoing others such as State Sen. John Moorlach (R-Costa Mesa), who said that despite his “high level of confidence in California’s election systems,” he knew that the state should “do more to assure the voters that the system doesn’t have holes in it and that the boat isn’t leaking.”

Meanwhile, in November 2018, San Francisco became the largest city in the United State to give noncitizens the chance to vote in a local election. While the city’s move did not impact any election in the state or federal levels, some believe that the trend could spread to the rest of the state, and errors could continue to occur.

“Noncitizen voting is a very contentious issue,” said Robin Hvidston, executive director of We the People Rising, a Claremont organization that lobbies for stricter immigration enforcement, at the time, according to the Los Angeles Times. “The move to extend voting rights to those illegally residing in San Francisco has the potential to backfire among citizens with a moderate stance on illegal immigration.”


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MOORLACH UPDATE — AB 1054 and Investor-Owned Utilities — July 9, 2019

I learned about "gut-and-amended" Assembly Bill 1054 a week ago Sunday. I’ve been working feverishly on researching the Governor’s plan to address wildfires and the utilities ever since. By last Friday’s Session, we still did not have the official version. It would be released that evening, after we had returned to our Districts.

The LA Times (electronic) interviewed me on the Senate Floor Friday morning while the Democrats were holding a private caucus meeting to strategize about AB 1054. My observations are reflected in the first piece below.

In the second piece below the Associated Press provides the results of Monday’s efforts. AB 1054 was first heard in the Senate’s Energy, Utilities and Communications Committee starting at noon. As the Committee’s Vice Chair, I had the privilege of running the beginning of the meeting, as the Chair’s flight was delayed. After a 2-1/2 hour discussion, it passed on a partisan vote.

Session started at 3 p.m. AB 1054 was waived with a majority party vote to allow it to be heard immediately in Senate Appropriations. There, it passed on a 5-to-1 vote, with one abstention, and went immediately to the Senate Floor, where it passed 31 to 7. I voted in support (also see MOORLACH UPDATE — Wildfire Fund and the Poor — June 22, 2019 and MOORLACH UPDATE — Undergrounding In Paradise — May 28, 2019).

AB 1054 is a massive bill of major import. This is not the best way to address statewide matters of an urgent matter, but I can’t think of another way considering the system we are operating under. This bill is not perfect, but some form of effort between the state and its regulated investor-owned utilities needed to be pursued.

All the same, I did provide a way to acquire more time to allow for more debate and improvement to the bill. I mentioned that the State Treasurer’s Investment Code could be modified to enable the Treasurer to purchase Commercial Paper from a downgraded investor-owned utility. The third piece below, from the San Francisco Chronicle, provides the conclusion of my remarks.

The fourth piece below is from The Sacramento Bee and provides the details of the Senate’s vote on AB 392, which I also supported.

And, if you want more reading, the fifth piece is from CALmatters and sets the stage for the upcoming redistricting responsibilities that are accomplished every ten years. My frustrations from the 2010 redistricting process were invoked (see MOORLACH UPDATE — Gerrymandering — August 24, 2011).

In 2016 and 2018, Sen. Ben Allen was successful in getting SB 1108 and SB 1028 passed and signed. I voted for both of them. These bills provided optional frameworks to provide redistricting committees. All well and good. But, his effort this year mandates local committees and virtually annuls his first two bills before they ever had a chance to be implemented. As I said on the Senate Floor, "Wouldn’t it be nice to see if these two bills worked first?"

Wanting to ease utility wildfire costs, Newsom faces biggest test yet with lawmakers


There’s been no shortage of criticism for Gov. Gavin Newsom’s plan to help California’s largest utilities stave off bankruptcy from costs associated with wildfires: No focus on prevention efforts. More difficulty proving utility negligence. Too much of the financial burden falling on millions of utility customers.

The governor, six months into his first year in office, faces a crucial test this week as he attempts to convince the California Legislature to ratify a multibillion-dollar utility wildfire fund before lawmakers leave Sacramento for a one-month recess.

“This is his first time up to bat on a very big issue,” said Joseph S. Tuman, a professor of political and legal communications at San Francisco State University. “It’s important for him to have success with this.”

The legislation, which will need a supermajority in both houses to pass, marks Newsom’s most consequential effort yet to leverage his political power in enacting major legislation. His reputation is on the line, and it’s unclear if his solution to utility liabilities will earn enough support, even in a state Capitol dominated by Democrats.

Lawmakers from both parties share concerns about any proposal that could be cast as a gift to power companies that have been responsible for wildfires in their communities. Newsom’s plan would take $10.5 billion from California ratepayers to help utilities pay wildfire costs, which critics say is an unfair burden for electricity customers with no guarantees that the corporations will operate their systems safely.

Late last month, nine legislators sent him a letter criticizing the bill for failing to address wildfire prevention.

“At a time when we have a $20-billion surplus, could we not make some of that money available to keep Californians safer?” asked Assemblyman Jim Wood (D-Healdsburg), who signed the letter to the governor.

Credit ratings agencies have inserted a sense of urgency into the process, threatening to downgrade the investment grades of Southern California Edison and San Diego Gas & Electric if the state fails by Friday to pass legislation that would significantly reduce utility companies’ financial liability for wildfires.

With Pacific Gas & Electric in the midst of federal bankruptcy proceedings, Newsom hired top law firms and investment analysts earlier this year — at a cost of $6 million — to help him develop a solution. The governor argues that his answer will cost ratepayers less than inaction. The bill requires utilities to pay claims for 2017 and 2018 wildfires without raising rates for their customers in order to access the fund.

Doing nothing would be “a catastrophic consequence to ratepayers, and I think most objective people that have looked at this would say that’s the option that will most impact customers,” Newsom said last week. “None of this is easy. I took the oath of office with this predicament, and sort of inherited a challenge here. I’m not trying to defer responsibility. Quite the contrary, I’ve owned this.”

Newsom’s proposal offers two different options to shore up the industry’s finances and avert another utility bankruptcy.

One model offers investor-owned utilities a $10.5-billion line of credit through an extension of an existing fee on electricity bills. A power company could use the money to pay costs that exceed its insurance coverage for wildfire damages, and it would be responsible to repay the loans.

A second option would establish a first-of-its-kind annual utility safety certification process before the onset of wildfire season. In order to qualify, companies would have to tie executive compensation to safety performance, create a safety committee on its board of directors and be implementing their wildfire mitigation plans.

A company that earned a safety certification before wildfire season would be allowed to dip into a wildfire fund, supported from the $10.5 billion from ratepayers and at least another $10.5 billion from the utilities.

The wildfire fund would act as a second insurance policy for the utilities. The companies would only have to pay it back, up to a cap, if they behaved unreasonably to cause a fire. The safety certification would also shift the burden of proof away from a utility, requiring outside groups to intervene in regulatory proceedings and raise serious doubt that the electrical corporation operated its system reasonably before a wildfire. Critics have said the shift would make it harder to prove that a utility is at fault.

Consumer advocates, including The Utility Reform Network, or TURN, are concerned that powerful utilities will use their political muscle to pass legislation in their favor. Edison and SDG&E formed a lobbying coalition with electrical workers and other business and community groups, called Action for Wildfire Resiliency, and have turned to Twitter to pressure individual lawmakers to support the governor’s bill.

“Consumers are always concerned when we see Wall Street lobbying hard at our Capitol because we know that they are lobbying for their own interests and not ours,” TURN spokeswoman Mindy Spatt said. “Their interests are in the utility being profitable. Our interest is in the utility being safe and affordable.”

Michael Aguirre, the former city attorney of San Diego who now represents customers in cases against the utilities, called the proposal “a funding mechanism to do more wildfires because they’ve given up on stopping them.”

If the bill is signed into law, Aguirre said he would sue the state in federal court for violating the Takings Clause in the U.S. Constitution.

“The Takings Clause says you can’t take someone’s property without due process of law and making me prove that you don’t have a right to my money is not due process,” Aguirre said about the money ratepayers will be forced to contribute to the wildfire fund.

Wood said he supports Newsom’s attempts to keep the power companies afloat. He also believes the state needs to spend more money to harden homes in fire-prone areas and educate residents about ways to manage their property to reduce the likelihood of burns — funding which was omitted from the budget signed by Newsom last month, a spending plan that dedicated nearly $1 billion to emergency response, wildfire recovery and prevention projects such as forest thinning.

“That’s historic investment into emergency management and wildfire prevention,” Newsom said last week. “But is there a lot more to do? Absolutely, and we’re committed to doing that over the course of the next couple of years.”

The California Forestry Assn., a collection of forest owners, mills and others with ties to the industry, agrees with Wood and the other lawmakers. Rich Gordon, president of the association, said there’s not enough money to treat all of California’s forest lands, which cover one-third of the state. But Newsom should dedicate more funding to create fuel breaks around vulnerable communities and defensible space near homes, he said.

“The bill, as currently crafted, protects utilities and provides them with an opportunity to stay somewhat solvent, but it doesn’t provide any protection for the folks who are also going to be contributing through the continuation of a fee toward that fund,” Gordon said.

It’s unclear if the governor has enough votes to pass the bill. His top advisors met with Republicans in the Legislature, suggesting they don’t expect to earn the support needed solely from his fellow Democrats.

Democrats in the Senate successfully negotiated for legislative amendments last week that created stronger rules for the safety certification process that ties executive pay to safety performance. The amendments would also allow for on-the-ground safety audits.

Wood, who represents part of Sonoma County devastated by fire in 2017, wouldn’t say if he plans to support or oppose the legislation.

“I don’t want to hold something hostage, but I do want people to know that I’m serious,” Wood said. “I’m not going away. These are valid concerns.”

Assembly Speaker Anthony Rendon (D-Lakewood) said he’s held discussions and meetings about the legislation for several days.

“We take it seriously,” Rendon said. “We certainly understand that something needs to be done quickly. At the same time, we’re not going to rush it at the sake of good policy.”

Others say they are concerned about the lack of transparency and time for public input. The bill was amended late Friday while many Californians were taking a long holiday weekend.

“This is not the way to do business,” Sen. John Moorlach (R-Costa Mesa) said. “There’s an urgency, but it isn’t something that is such a high crisis right now that it needs to be done within a week before we go on summer break. It needs to be looked at with a lot of good, smart people around the state before it’s voted on.”

Newsom said last week that the ratings agencies may give the Legislature a few extra days to pass the bill if lawmakers make substantial progress this week. If the Legislature shows it is “moving with sincerity toward coming up with some resolution,” he said, it could also make it less likely that utilities would file for bankruptcy in the event of a downgrade.

California Senate OKs Wildfire Proposal With Bipartisan Vote

The California Senate has approved a proposal to stabilize the state’s electric utilities and improve safety in the face of devastating wildfires.


California senators approved a proposal Monday aimed at stabilizing the state’s electric utilities and putting a renewed focus on safety in the face of devastating wildfires caused by utility equipment, with supporters calling it a plan that holds utilities accountable and protects ratepayers.

"Make no mistake — this is not a utility bailout, it’s a ratepayer bailout," said Sen. Bill Dodd, a Napa Democrat and one of the bill’s co-authors.

Lawmakers and Gov. Gavin Newsom are rushing to pass a package of wildfire bills by Friday before lawmakers take a month long break and as ratings agencies consider whether to further downgrade the credit ratings of the state’s investor-owned utilities. California’s wildfire season has already begun.

The proposal now heads to the state Assembly.

The bill creates a wildfire fund of tens of billions of dollars that utilities can tap to help pay for wildfire damages if they follow certain safety steps, including tying executive pay to safety. Utilities and ratepayers would pay into the fund. Utilities would also have to invest billions in wildfire mitigation efforts.

A coalition of groups has rallied around the measure, from labor unions representing utility workers to wildfire survivors, who see the bill as giving them more leverage as Pacific Gas & Electric Corp. goes through the bankruptcy process. A watchdog group, The Utility Reform Network, also supported the bill Monday, praising provisions on wildfire mitigation and tying CEO pay to safety.

Although it won bipartisan support, lawmakers said it wasn’t perfect. Some questioned whether it would raise utility bills, while others said it didn’t do enough to protect homes or manage vegetation that fuels wildfires. Sen. Scott Wiener, the only Democrat to vote against the bill on the Senate floor, said it was a missed opportunity to move the state away from reliance on investor-owned utilities.

California’s three major utilities — PG&E, Southern California Edison and San Diego Gas & Electric — are owned by investors.

"We need to take what is a broken model right now in terms of investor-owned utilities in California and look toward the future," Wiener said.

The bill is speeding quickly through the Legislature; it was introduced less than two weeks ago and amended significantly last Friday. It had its first public hearing roughly six hours before it went to a vote on the full Senate floor.

"It’s a little rushed," said Republican Sen. John Moorlach, though he voted to pass it.

It is a sprawling piece of legislation and has turned into a battleground for special interests. It provides, for example, broad worker protections if a utility changes ownership or sells off some of its assets. Wiener said that would make it harder for municipal electric utilities to buy assets from major power companies, potentially stifling efforts to expand publicly owned electric systems.

Last week Newsom acknowledged the complexity of the issue and said in response to critics that doing nothing would be catastrophic for utility ratepayers.

"None of this is easy," Newsom said then. "I think it’s the best of all the options and, in the absence of others being presented, I think it’s the one most likely to get the votes."

The urgency to act comes after California experienced two of its most devastating wildfire seasons in 2017 and 2018, with some of the worst blazes blamed on utility equipment. PG&E Corp. filed for bankruptcy in January as it stared down potentially tens of billions of dollars in liability costs.

Under the plan, utilities would have to get a new safety certification and show their conduct was reasonable in order to tap it. If a utility has the safety certification, it would be presumed to have acted responsibly, shifting the burden to victims or others to show they did not. If victims’ groups raise serious doubt about the utility’s conduct, the burden would then shift back onto the utility.

It also creates a new Wildfire Safety Advisory Board with appointees from the governor and legislative leaders to advise the California Public Utilities Commission. The Associated Press reported that the original version of the legislation would have automatically exempted all communications between the board and the Public Utilities Commission from public disclosure and exempted it from some portions of the state’s open meetings law.

The bill has been changed to remove the open meetings law exemptions, and it no longer includes a blanket disclosure exemption. Instead, the Public Utilities Commission or the board would have to assert privilege in individual cases.

California Senate easily passes bill to protect utilities from wildfire costs

Photo of J.D. Morris
J.D. Morris
A major bill intended to rein in the increasingly dire wildfire risks faced by California’s investor-owned utilities easily cleared its first legislative hurdles on Monday as the state’s elected leaders raced to get new laws in place before power lines cause any more devastating blazes.
The Senate voted 31-7 in favor of the far-reaching legislation, AB1054, which would create a fund of at least $21 billion to cover future wildfire claims and usher in a series of changes to the way the state oversees the safety of its electric grid. Two Senate committees voted overwhelmingly in favor of advancing the bill earlier in the day.

The fast-tracked bill now heads to the Assembly, which is under pressure from Gov. Gavin Newsom’s administration and Wall Street to act before the end of the work week. If passed on a two-thirds vote, the legislation would become California’s most comprehensive response so far to the wildfire problems of Pacific Gas and Electric Co. and its two Southern California counterparts.

Aside from creating the wildfire fund, the bill also would mandate that the three major utilities make a total of $5 billion in safety investments — from which their shareholders cannot profit — and get the safety of their operations certified annually by the state. It also would change the standard regulators follow when deciding whether utilities can recover wildfire costs from their customers. A related bill would create an office within the Natural Resources Agency that focuses on energy infrastructure safety, advised by a panel of experts.

“It is clear we must rapidly adapt and respond to the effects of climate change and other causes driving these monster infernos,” said state Sen. Bill Dodd, D-Napa, on the Senate floor. “Too often, electric utilities are blamed for these devastations … No plan is perfect, but neither is (the) wildfire situation we face as Californians.”

The bill is intended to help avoid a repeat of the situation faced by PG&E, which filed for bankruptcy in January because of its massive wildfire liabilities. PG&E would not be able to access the wildfire fund unless the company resolves its current wildfire claims and exits bankruptcy protection by June 30 of next year.

One of the no votes came from Sen. Scott Wiener, D-San Francisco, partly because of recent amendments that he said would make it harder for local jurisdictions to create or expand municipal utilities.

San Francisco is considering buying the local power lines controlled by PG&E. Mayor London Breed joined the mayors of Oakland and San Jose in a letter opposing the amendments, which would give state regulators greater authority over any attempt by a local government to buy part of a utility.

Wiener said he was reluctant to oppose the bill because “there’s a lot of good in this legislation” and it “will have benefits for ratepayers.” Ultimately, however, he was compelled to vote against it in committee and on the Senate floor in large part because it “dramatically increases” the power of regulators over municipal utility expansion efforts, he said.

Newsom, whose office spearheaded the plan underlying the bill, had asked lawmakers to act by Friday — when the legislature is scheduled to break for summer recess. Southern California’s major investor-owned utilities could see their credit ratings downgraded to junk if legislation is not in place by then.

Some of the state’s most frequent utility critics of late have not opposed the bill or even actively backed the measure.

Supporters include Up From The Ashes, a wildfire victim advocacy group, and the California State Association of Counties, among many other organizations.

Mark Toney, executive director of The Utility Reform Network consumer group, said at the hearing that his organization reserves the right to demand changes to the bill later, but called it “the best proposal we have seen on the table.”

Only a handful of people spoke in opposition to the bill, including 2017 Santa Rosa wildfire victim Will Abrams, who, during a committee hearing, called it a “Christmas tree for utilities” with “too many ornaments on it” and warned of loopholes in the legislation that “utilities and their attorneys will drive trucks through.”

PG&E is neutral on the bill, while Southern California Edison supports it and San Diego Gas & Electric has no position, according to representatives of the companies.

Before the bill’s first hearing, about two dozen survivors of the 2017 and 2018 fires gathered on the steps of the Capitol to rally in support of the bill. They said that while AB 1504 doesn’t directly help victims of past fires, it’s a crucial starting point and will give them leverage to negotiate a settlement with PG&E.

The bill came after months of policy work from state government officials and a special wildfire commission, but the specific legislative language was released less than two weeks ago.

Sen. John Moorlach, R-Costa Mesa (Orange County), lamented his colleagues’ rush to pass the legislation, saying he was “sorry the perceived immediacy is dictating the pace” of AB 1054. Still, Moorlach indicated on the Senate floor, perhaps jokingly, that the bill’s swift progress had one upside— showing the state government can move quickly.

He ultimately voted yes.

Chronicle staff writers Dominic Fracassa and Dustin Gardiner contributed to this report.

J.D. Morris is a San Francisco Chronicle staff writer. Email: jd.morris Twitter: @thejdmorris

All that’s left to overhaul

California’s police use-of-force

law is Gavin Newsom’s signature

BY DAVID CARACCIO | <a href="mailto:hwiley

A measure that would make California’s law governing police use of force one of the strictest in the country cleared the Legislature late Monday and is on its way to Gov. Gavin Newsom’s desk.

Assembly Bill 392 passed the Senate floor on Monday afternoon in the final leg of a yearlong process to elevate California’s deadly force law from when officers think it’s “reasonable” to only when “necessary.”

The Democratic governor is expected to sign the measure. He called it “an important bill” that will “help restore community trust in our criminal justice system” in late May.

AB 392 allows officers to employ lethal force “based on the totality of the circumstances,” but it defines “necessary” as when officers or the public face an imminent threat of death or serious bodily harm.

The bill would require evaluating an officer’s conduct before and after deadly force is used and whether deescalation techniques were attempted as an alternative, but would allow managers to consider “all facts known to the peace officer at the time.”

Monday’s 29-1 vote contrasted with the rocky reception Assemblywoman Shirley Weber encountered when she introduced the bill in February.

The San Diego Democrat and police lobbyists struggled to find a compromise that could satisfy both civil rights groups and law enforcement agencies.

But after accepting amendments that rolled back a provision to hold officers criminally liable if they did not meet the strict standard, the police lobbyists rescinded their opposition.

Family members of Stephon Clark, shot by police in March 2018 after officers responding to a car burglary call mistook his cell phone for a gun, marched to the Capitol a year later in support of the effort.

“It’s taken a long year of commitment by a lot of people,” Senate President Pro Tem Toni Atkins said. “It was not a simple thing to weave together, to keep the parties coming together to work toward something we could agree upon.”

Costa Mesa Republican state Sen. John Moorlach said the bill would reduce “tragic and possibly preventable” deaths.

Many of his fellow Republicans joined him in supporting the bill.

AB 392 is backed by the American Civil Liberties Union of California, along with hundreds of other organizations and individuals.

Dozens of law enforcement representatives from across the state, however, still oppose the measure.

Weber and the bill’s supporters said the legislation gives California an opportunity to serve as a use-of-force model for other states to follow suit.

“Finally, folks are serious about it,” Weber said. “We were fighting some of the most difficult issues in the state. Who should do it better than California?”

State may push cities and counties to draw “fairer” districts


Rhonda Shader is tired of looking at maps of Placentia.

First as a councilmember and now as the mayor, Shader has seen the 7-square miles of her north Orange County town sliced and diced at least a dozen ways to satisfy the demands of good governance groups who accuse the city’s leaders of gerrymandering and discrimination.

“We’ve really made an effort to stay out of court because quite honestly our city can’t afford it,” said Shader.

Easier said than done.

In 2016, the city agreed to ditch its at-large election system and adopt a new map with five distinct districts. That came after the Mexican American Legal Defense and Educational Fund threatened to sue the city, arguing that the old system, with each council member representing the entire city, made it all but impossible for Placentia’s minority Latino community to elect a representative of their choosing.

When the city adopted a new map in 2018—one of eleven proposals—the Legal Defense Fund threatened to sue again, arguing that the designated-Latino district was short on Latinos voters.

Now the city is considering its third map.

Placentia is one of hundreds of California cities and counties that have been forced, either by court order or the threat of legal action, to redraw their electoral maps over the last decade. In Kern County, Palmdale, Torrance, Menlo Park and Martinez, to name a few, litigants have accused local leaders of abusing the districting process to disempower minority groups, protect incumbents, or tilt the scales in favor of one party.

“When the lines aren’t drawn fairly, it can block a community out of having representation for a whole decade. On top of that, when people feel the election process is rigged, it undermines trust in democracy,” said Nicolas Heidorn, policy and legal director with California’s Common Cause, a government transparency group.

They may soon have extra help from the state of California: Legislators are considering two bills that would place new districting rules on local governments.

Already California’s congressional and state legislative districts are drawn by a bipartisan commission, which supporters say represents a national gold standard in fair, transparent political map design. Its intent is to prevent gerrymandering—a technique of map manipulation named for Elbridge Gerry, who as Massachusetts governor in 1812 permitted his party to draw districts to their advantage, including one shaped like a salamander. An editorial cartoonist at the time lampooned it as a “Gerrymander.”

Now, despite a recent U.S. Supreme Court ruling that gives lawmakers across the country the greenlight to gerrymander as much as they like, these two bills could push the state even further in the other direction.

  • AB 849 would set up rules restricting how cities and counties draw their council and supervisory maps. Among other things, the bill by Democratic Assemblyman Rob Bonta from Oakland would require each district to “respect the geographic integrity of local neighborhoods and communities of interest.”
  • SB 139, by Santa Monica Senator Ben Allen, would require most counties over 250,000 people to create independent redistricting commissions. These could either be modeled on California’s Citizens Redistricting Commission, with virtually equal seating for Democrats, Republicans and political independents, or they could be made to reflect the partisan makeup of the county itself—as long as no one political party controls more than a majority of the seats. Of the 12 slots, a single party would only be allowed to have 6, with the rest made up of political independents. Exceptions are made for San Francisco, San Diego, Los Angeles and Santa Barbara counties, which already have their own commissions.

In the wake of a recent ruling from the U.S. Supreme Court, advocates say it’s more important than ever that the state take the lead on this issue.

In an opinion issued in late June, Chief Justice John Roberts ruled that the county’s highest court did not have the authority to second-guess district lines just because they artificially inflate the electoral prospects of one party over another. But, he reminded opponents of partisan gerrymandering, “the avenue for reform established by the Framers, and used by Congress in the past, remains open.”

In other words, states that are tired of gerrymandering are invited to do something about it at the state level.

“These bills are basically taking up the challenge that was laid down in that opinion,” said Heidorn with Common Cause, the co-sponsor of both bills.

So far, no high-profile Democratic lawmakers have argued that the state should abandon its high-minded position on nonpartisan districting in response to the Court’s ruling. That might be because California’s independent districting system was approved by voters in two separate ballot measures and that, with Democrats holding supermajorities in both chambers of the state Legislature along with 46 of the state’s 53 congressional seats, there isn’t that much room for electoral improvement.

If both bills were to become law, they would go into effect next year, just in time for the next round of mapmaking after the 2020 Census. For the hundreds of cities that have, like Placentia, been forced to adopt by-district city councils over the last decade, this will be their first experience with redistricting.

“As a general matter, it is wise to ensure that the first redistricting process that these local governments experience go as smoothly and transparently as possible,“ said Thomas Saenz, president of the Mexican American Legal Defense and Educational Fund. Saenz said the Fund withdrew its support of SB 139 last week, after the bill was amended to allow counties to establish committees with equal partisan representation.

“We don’t think that complies with the US Constitution,” he said. “If particular counties did that we would look at whether there is a legal avenue to challenge that choice.”

The Fund is officially neutral on both bills.

So far, most of the opposition has come from county and city government groups, who are worried they will be saddled with the costs of implementing these reforms.

But others have raised philosophical objections—arguing that while extreme gerrymandering results from partisan warfare at the state and national level, such partisanship is largely absent in cities and counties where offices are technically nonpartisan.

“This is what folks mostly up in Sacramento are clueless about,” said Doug Johnson, president of the National Demographics Corporation, which consults with cities on political mapmaking and who has drawn many electoral maps that could be invalidated by these laws. “They’re so used to Sacramento politics and the Sacramento gerrymandering and the nonstop partisanship of Sacramento, they miss that local government in California is a whole different world.”

Courts have not always seen things that way.

Last year, a federal district judge found that the Kern County Supervisors’ map split the Latino-dominated portion of the county across multiple seats, depriving Latinos “of an equal opportunity to elect representatives of their choice.” The county was ordered back to the drawing board.

Under Allen’s bill, Kern’s next map would likely be drawn by an independent commission.

Placentia faced a similar charge when it approved its 2018 district map, which cut the city into columns running north to south, splitting the Latino neighborhood between the first and second district. But Shader said that configuration was designed to promote collaboration at City Hall.

“Everybody has a piece of the north, everybody has a piece of the south,” she said. Instead of a system in which each council member is loyal to one neighborhood or community, that original map “helps everybody work together,” she said.

“I feel like they’re trying to control our process,” she said of Bonta’s bill. “We know our communities.”

Kevin Shenkman has heard this argument before. By his count, the Malibu-based lawyer has forced over 70 California cities to redraw their maps, beginning with his first suit against Palmdale in 2012.

“That’s just another way of saying we don’t want to have to pay attention to the poor neighborhood,” he said. “Does that make making decisions more difficult? Sure. But it also makes those decisions better because you’ve got every viewpoint at the table.”

Shenkman said that he is concerned that Bonta’s bill doesn’t go far enough to prevent elected city officials from drawing districts simply to protect their own seats. But splitting neighborhoods—even for the sake of unity—would be out.

Yet the idea of the state imposing its will on localities rubs some lawmakers the wrong way—including one with a record against gerrymandering.

Sen. John Moorlach, a Republican from Costa Mesa, sat on the Orange County Board of Supervisors in 2011, when a proposed district map grouped together the largely Republican Vietnamese community while splitting up the majority Democratic Latino voters. Moorlach cast the lone “no” vote, telling a reporter, “I just wanted to stay with my principles. I’m opposed to gerrymandering.”

Even so, he opposes SB 139. Moorlach said he supported two bills in 2016 that gave cities, counties, school and other special districts the option to appoint redistricting commissions.

“I appreciated that spirit,” he said. “But I get a little nervous about requirements—you shall versus you may.”


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MOORLACH UPDATE — Oversight for County Sheriffs — July 6, 2019

The joys of dealing with County Boards of Supervisors and independently elected countywide offices. I felt the tension shortly after being appointed to replace Robert L. "Bob" Citron on March 17, 1995. County Executive Officer Jan Mittermeier was good about reminding everyone that there was a significant difference in managing department heads she could appoint and those who voters elected. Obviously, there has to be some form of balance in the equation. The voters should have independently elected representatives and they should be good department managers.

For me, as the new Treasurer-Tax Collector back in 1995, I enjoyed a significant amount of oversight, including a Treasurer’s Oversight Committee, a Treasury Investment Committee, a quarterly review by Fitch Rating Services, regular internal audits, and the annual external independent audits. I also provided monthly reports and worked diligently with the County Executive Officer as a team player.

After being elected to the Board of Supervisors, I was on the other side of the equation. We had an elected department head that was not managing well. He tendered his resignation. Then he decided to renege and come back. I was Board Chairman at the time and I ordered the locks on his door to be changed. Awkward (see MOORLACH UPDATE — John Williams — February 8, 2012). I did not pursue the position of a County Supervisor to tangle with independently elected countywide officials.

I also found myself and my four Board colleagues dealing with a Sheriff who, among other awkward personal decisions, had more than 30 lawsuits regarding the culture in the jails, the murder of John Derek Chamberlain in the Theo Lacy Jail while Deputy Sheriffs were looking away, and a concern of truthfulness about a foreign trip to visit a contracting DNA lab (see MOORLACH UPDATE — Property Tax Due Date — April 10, 2013).

Consequently, I looked at a number of oversight committee models. A citizens oversight committee was not the preferred method, but the Michael Gennaco Office of Independent Review (OIR) in Los Angeles County seemed the best at the time. But, several years later, even Mike Gennaco, its initiator, could not harness then-Undersheriff Paul Tanaka; and now former Los Angeles Sheriff Lee Baca is facing prison time.

With all of the turmoil, I led the effort to establish an OIR (see MOORLACH UPDATE — Money for Nothing — September 2, 2015, MOORLACH UPDATE — Civilian Oversight — June 15, 2015, MOORLACH UPDATE — SB 593 — June 10, 2015, and MOORLACH UPDATE — OIR/Retroactive Anniversary — July 20, 2012).

So, while remaining relatively quiet at this week’s Senate Public Safety Committee, on which I serve as Vice Chair, when AB 1185 (McCarty) came before us, I shared my former experiences and supported the bill. This makes me the only Republican legislator to date to do so.

Coming from a county that had an independently elected rogue Treasurer that forced it into Chapter 9 bankruptcy, I believe there should be balance between the Board of Supervisors, the public, and the countywide electeds. Some form of oversight is one potential tool. The Sacramento Bee covers this discussion in the piece below.

‘Literally, our sheriff locked the doors’: Sacramento County grand jury calls for new oversight



The Sacramento County Grand Jury endorsed calls for more oversight of the Sheriff’s Department in a new report that recommended creating a separate commission to increase accountability of the law enforcement agency.

The jury investigated citizen complaints of Sacramento County Sheriff Scott Jones and analyzed whether Jones illegally denied former Inspector General Rick Braziel access to the department’s buildings, records and personnel last year. Jury members also analyzed whether the county Board of Supervisors was sufficiently monitoring the department.

The grand jury determined Jones did not break the law when he locked Braziel out of the Sheriff’s Department last year. Members of the grand jury wrote that the county would need new authority to prevent a sheriff from obstructing a similar investigation in the future.

The grand jury, a commission of volunteers that issues investigative reports on local government, encouraged the Board of Supervisors to create some kind of law enforcement oversight commission by the end of this year. It recommended the county give the commission power to investigate the Sacramento County District Attorney’s Office as well.

“Sacramento County-based oversight of the district attorney and sheriff is inadequate given the potential impact their policies and action could have on the communities they serve,” the report read. “The Board of Supervisors should initiate action to create a Sacramento County oversight commission with responsibilities pertaining to the district attorney and sheriff.”

The Board of Supervisors appointed Braziel, a former Sacramento police chief, as an inspector general to investigate deputies’ use of force when officers shot an emotionally disturbed African American man on Highway 50 in May 2017.

Jones locked Braziel out of the department in August 2018 after Braziel concluded his investigation into the shooting but before Braziel’s contract with the county expired. Jones in January alleged that Braziel rushed the report to help him win a contract with another police department.

The grand jury’s recommendation for new a commission coincides with efforts by Assemblyman Kevin McCarty, D-Sacramento, to create oversight boards equipped with subpoena and investigative powers.

The measure aims to give county boards of supervisors or other interest groups more authority to investigate sheriffs, who often are among the most powerful local elected officials in California’s 58 counties. Typically, sheriffs answer to voters every four years during elections and to boards of supervisors when they write budget requests.

“This can only increase public trust,” McCarty said. “It’s much bigger than Scott Jones. He was a good example, and Exhibit A as far as the need for this, but there are other counties across California that show this policy is needed.”

McCarty’s Assembly Bill 1185 narrowly passed the Assembly last month, gaining just enough votes to move to the Senate.

It gained momentum at the Senate Public Safety Committee last week, where it passed on a 6-1 vote.

McCarty this week cited Jones’ decision to lock out Braziel in encouraging the committee to pass the bill.

“Literally, our sheriff locked the doors and didn’t allow an inspector general to do his job anymore,” McCarty said at the committee hearing.

The sheriff’s office did not immediately respond to requests for comment, but Jones previously shirked the idea of third-party supervision in December.

“I’ve been described as rogue, authoritarian, a dictator, a mini-Trump,” he said, speaking to the County Board of Supervisors. “Racist, we’ll add that. All because I won’t voluntarily allow independent oversight of the sheriff’s department.”

The California State Sheriffs’ Association has called the proposed oversight bill “unnecessary.”

“Counties have already created different models of civilian oversight without the need for specific legislative authorization,” said Cory Salzillo, legislative director for the association. “The attorney general has supervision of the sheriffs if there is any question about oversight or accountability. Additionally, the Board of State and Community Corrections, civil grand juries, protection advocacy agencies inspect and oversee sheriff operations.”

Sen. John Moorlach, R-Costa Mesa, joined Democrats in supporting the bill and cited his experience as a member of the Orange County Board of Supervisors in describing why he backed additional oversight of elected sheriffs.

During Moorlach’s tenure in local government, he said Orange County faced dozens of lawsuits involving its sheriff’s department. He described the county’s civil grand jury as “limp.”

“Saying the supervisors have the ability to control the sheriff through the budget, that’s bogus. You just cannot cut public safety in the budget,” Moorlach said.

The jury pointed to civilian commissions created throughout California that work as third parties to investigate public concerns of elected law enforcement officials. Oversight commissions In Los Angeles, Orange County and San Diego, for example, are entitled to review citizen complaints, analyze policies and procedures and facilitate trust between law enforcement and the public.

“A commission could assist all parties in determining what works and what might be changed to achieve greater understanding, tolerance and trust between the parties,” the report continued. “Meetings would generally be open, involve the public, law enforcement, and hear testimony from experts and laypersons.”


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MOORLACH UPDATE — Housing and Banking — July 4, 2019

Happy 4th of July!!

The last week has seen the Capitol hopping over a July 12th deadline to construct and approve a wildfire/utility/insurance solution that the credit rating agencies will be happy with. It’s a big assignment and without a lot of specifics, it’s being crammed down our throats. What makes this task interesting is that we have not seen, as of 5 p.m. last night, the proposed legislation. And a meeting (hearing) of the Senate Energy, Utilities & Communications Committee to vote on the gut and amended AB 1054 is set to be held, as of a few hours ago, on Friday, at the Chair’s call. I was informed late last evening, around 8 p.m., that the meeting has been moved to Monday.

With the 72-hour rule, this massive undertaking will have to be approved by the Legislature early next week, making the final week before the summer break a memorable one. Consequently, I’ve enjoyed meetings yesterday with representatives of PG&E and Edison International. But, this is not the way critical public policy should be shaped. With fun like this, who needs fireworks?

In the last few days, I’ve been focused on addressing the topic of involuntary housing for mentally ill homeless individuals. We would not allow seniors suffering with dementia to live on the streets. So why do we allow young people with schizophrenia to do so? It was discussed on the Dr. Drew Midday Live with Leeann Tweeden Show last Friday, June 28th, at the 2 p.m. hour (see and . And I was also on The Larry O’Connor Show on July 1st at 11:00 a.m. where I raised the subject (see

The California Globe picked up my comments on the Senate Floor this past Monday and used my concern as the closer for the first piece below. The joys of trying to message the need for a total reevaluation of how gravely disabled individuals are being treated in our society.

Yesterday’s Senate Governance and Finance Committee heard the public bank bill. I shared that I understood the concept, as I had tried to form a bank some 23 years ago while serving as a County Treasurer. My efforts found that it was feasible, but not profitable. The potential to increase revenues was negligible, and the possibility of unanticipated expenditures would have put the taxpayers at risk. I also shared that the audit reports issued by the State Auditor on the DMV and the High Speed Rail project gave me less confidence that a government run bank would pencil out. The North Bay Business Journal provides more on the subject in the second piece below. The title is deceptive, as this initiative did not "sail through," as it even had a rare "no" vote from a Democrat member of the Committee.

I am a big fan of the committee’s chair, so I will give him a copy of our most recent state rankings on the Senate Floor tomorrow morning (see MOORLACH UPDATE — 2017 State Per Capita UNPs — April 2, 2018). The states he mentioned are doing better than California, with the exception of Kentucky. Kentucky had been a Democrat-controlled state until November of 2016 and is now being turned around by a Republican majority in both of its legislative houses and in the Governor’s mansion. The biggest residue left by the Democrats in Kentucky is, you guessed it, a massively underfunded public employee defined benefit pension plan.

25th Anniversary Look Back

After my election loss in June of 1994, I wrote a seven-page letter to California Assemblyman Curt Pringle. It was dated July 29, 1994. Interest rates were still being raised by the Federal Reserve Board and I was truly concerned about my county. I do not believe I’ve ever made this letter public.

I had five major concerns. Here is the opening of my correspondence and my first concern, City Investment Policies.

Dear Curt:

Let me, once again, thank you for all of your support and encouragement in my campaign to unseat incumbent Orange County Treasurer-Tax Collector, Robert L. "Bob" Citron. It was a great learning experience to challenge our nationally known "Democratic leverage artist."

Based on what I did learn during the campaign makes me think that losing was probably the best thing that could have happened. We uncovered just how speculative and interest rate sensitive the Orange county Investment Pool is. Accordingly, I have five proposals for legislation that I would like to see adopted and will be more than happy to assist in drafting. Let me share my obesrvations and recommendations.

City Investment Policies

Every city has an investment policy. It is usually reviewed and approved every year as part of a city’s budget process.

The City of Tustin has a provision in its investment policy prohibiting it from investing in reverse repurchase agreements. Accordingly, that City pulled out of the Orange County Investment Pool (Pool) during the campaign and garnered a significant amount of press attention. Mr. Citron is very sensitive about municipalities pulling out of the Pool; more on this later.

Following the campaign, I met with the Finance Director of Costa Mesa and discussed my own city’s investment policy. It allows for up to ten percent of its reserve funds to be invested in reverse repurchase agreements. It also allows for the City to put thirty percent of its funds in the Pool.

I informed my city’s Finance Director that the Pool was over two-hundred percent leveraged in its portfolio through the use of reverse repurchase agreements. Accordingly, having thirty percent of the City’s portfolio in the Pool would violate the provision limiting such investments to no more than ten percent.

The response I received was mind boggling. State law permits investment policy provisions to be circumvented if the City invests in a County Investment Pool. Obviously, I come from the private sector and find such "loopholes" to be ludicrous. You can’t do it yourself because it runs contrary to the three basic priorities of investing: safety of principal, liquidity, and then yield. But you can have Citron stand these priorities on their head until the cows come home!

This statute must be reviewed and modified so that an investment in a County Investment Pool can not override any provision in a City’s Investment Policy if the Pool’s investments are in conflict.

For my last Look Back, see MOORLACH UPDATE — Half Empty Reserve Concerns — June 24, 2019. Have a great Independence Day!

California Senate Passes ‘Housing for Homeless,’ Bill With Penalty Component

In Sacramento, home of the state government, homelessness is up 56 percent increase in the past two years

By Katy Grimes

The Committee on Budget and Fiscal Review authored AB 101, which provides for statutory changes needed to enact the housing and homelessness-related provisions of the Budget Act of 2019.

In short, the Legislature is making legislative changes to the legislatively-created housing and homeless problem in California, according to Sen. Jim Nielsen (R-Gerber). Nielsen said, “some of those have been foisted on that community by this Legislature.”

AB 101 would require the state Office of Audits and Evaluation to audit the Community-Based Transitional Housing Program, which provides grants to cities and counties to increase the supply of transitional housing available to recent parolees, and to report the results of the audit to the Joint Legislative Budget Committee by May 1, 2020. Current law requires the Office of State Audits and Evaluations to complete the audit and to report to the Joint Legislative Budget Committee by May 1, 2019.

But if the city or county does not properly comply, punishment will come from the Attorney General.

Senators spoke in favor of the bill, and it was passed by the Senate 39-0. However, many Senators still blame the homeless explosion on lack of affordable housing in California, and not on opioid drug addiction and the crime used to support the habit, serious mental illness, other addictions, as well as the laws which decriminalized drug crimes, violent sex crimes, theft, as well as elder and dependent adult abuse, assault with a deadly weapon, rape… many crimes previously considered violent.

Sen. Bob Hertzberg (D-Van Nuys), called the crisis an “urgent moral issue,” and said, “only permanent housing solves homelessness.”

Some Senators blame the affordable housing crisis on wages in the state not being high enough to afford skyrocketing rents. Sen. Maria Elena Durazo (D-Los Angeles) said half of the people living on the streets “have jobs, but don’t make enough money.” She said they “live in cars or on someone’s sofa.”

Sen. John Moorlach (R-Costa Mesa) addressed the seriously mentally ill and the need for involuntary housing. “What about those who cannot take care of themselves?” Moorlach asked.

The bill seems heavy handed if the goal is to quickly build more affordable and transitional housing and get people off of the streets.

The bill analysis said this bill would require Housing and Community Development to offer the city/county the opportunity for two meetings (in person or telephone) to discuss their violations and to provide the city/county written findings regarding the violation prior to allowing the Attorney General to bring suit against the city or county. It would then allow the Attorney General to seek, and a court to allow, certain remedies when the court finds that a local jurisdiction is not substantially compliant with housing element law.

AB 101 would require the California Attorney General to request, upon a finding of the court that the housing element of a city or county does not substantially comply, that the court issue an order or judgement directing the city/county to bring its housing element into compliance, and would require the court to retain jurisdiction to ensure that its order or judgement is carried out. Once the court determines that the housing element substantially complies, this bill would provide that the court determination has the same force and effect as HCD’s determination that the housing element substantially complies.

Sen. Nancy Skinner (D-Berkeley) expressed concern that AB 101 too narrowly defines who can receive the housing benefit. Skinner said if someone is already homeless, or of they are within 14-days from being evicted/homeless, they qualify. But, Sen. Skinner pointed out, many people move out of their rentals prior to being evicted, even if they become homeless, rather than have an eviction on their record – the kiss of death in ever qualifying for another rental. She said that homelessness in Alameda County, her district, is up over 47 percent since 2017.

In Sacramento, home of the state government, homelessness is up 56 percent in the past two years.

But too many lawmakers remained focused on the high cost of housing in California as the reason so many live on the streets in the Golden State. If that was truly the cause/effect, the Legislature could immediately suspend the state’s notorious building requirements like the California Environmental Quality Act, and require cities and counties to remove their many layers of building restrictions, regulations, permits and hefty fees, and mandate a time frame in which housing projects are approved. And they could do this under an emergency order.

However, while there is most definitely a housing shortage in California, the people with jobs who live in their cars are often young tech-industry workers living in the most expensive area of California — Palo Alto, in Santa Clara County near the San Francisco Bay area, where the median home price is $2,932,700.

Building more housing would help the cost of housing drop dramatically, eventually. But for the drug-addicted criminals, and the severely mentally ill, housing isn’t the only answer, and it may not be the right answer. Treatment for those folks is the first step. As for the violent sex offenders living on the streets instead of in jails and prisons, and the felony rapists and human sex traffickers, which are no longer considered violent felonies, the Legislature can do an immediate legislative fix.

Instead, six real criminal justice reform bills were killed last year in the California Legislature which would have expanded the definition of violent crime to include human trafficking, elder and dependent adult abuse, assault with a deadly weapon, rape, and other crimes most Californians consider violent.

These six bills would have corrected unclear language and serious flaws in Proposition 57, passed in 2016 by voters. Prop. 57, titled the “Parole for Non-Violent Criminals and Juvenile Court Trial Requirements Initiative,” was to increase rehabilitation services and decrease the prison population. Though the measure passed, it was misleading on many fronts. Voters believed the title and passed the initiative.

As Prop. 57 stands, crimes such as human trafficking, child abduction, elder and dependent adult abuse, assault with a deadly weapon, and rape of an unconscious person, are no longer considered “violent crimes.”

Fixing California’s homeless crisis is a multi-pronged process, but not insurmountable. Housing is one important component, as is addressing the rampant criminal justice element, and the desperate need for mental illness treatment facilities and involuntary housing, and this can all be done immediately by this Legislature.

Public-banking bill sails through California Senate committee with North Bay support



A bill that would allow some municipalities to establish their own banks in California edged through a state committee Wednesday.

The legislation, Assembly Bill 857, passed the Senate Governance and Finance Committee on a 4-3 vote with the support of Chairman Mike McGuire, D-Healdsburg.

Authored by Assemblymen David Chiu, D-San Francisco, and Miguel Santiago, D-Los Angeles, the bill would allow local governments of a certain size to create publicly owned banks with the goal of divesting from large banks invested in the fossil fuel industry, private prisons, and other industries while investing local tax money back into communities.

Municipalities could also band together to create joint powers authorities under the bill.

McGuire did not speak extensively in support of the bill during the hour-long discussion but pushed back against doubts voiced by Sen. John Moorlach, R-Costa Mesa, that publicly run banks could end up resembling other struggling public projects like the beleaguered California high-speed rail project.

“I think it’s important to note that the state would not be running the bank — it would be local governments,” McGuire said. “It just baffles me that while the state has challenges, I encourage you to go take a look at Mississippi. I encourage you to go take a look at Kentucky, I encourage you to go look at New Mexico. Look at several other states. See how they run, the challenges they have, then compare it with California.”

Opposition to the bill also came from the California Bankers Association and the Association of County Tax Collectors and Treasurers. Jason Lane of the bankers association expressed concern that while the bill would require any public bank to have Federal Deposit Insurance Corp. insurance and conduct other due diligence before opening its doors, all banks takes losses.

“When you have an erosion of capital due to loan losses … will the state have to step in and backfill those losses?” Lane asked.

Chris Petlock, who serves as the chief financial officer for the Valley of the Moon Water District in the Sonoma Valley and is a member of Friends of Public Banking Santa Rosa, backed the bill.

He said the 2017 North Bay fires exposed how much infrastructure work needed to be done in his district and said a public bank could offer loans to municipalities like his at lower interest rates than large financial institutions.

The bill now goes to the Senate Appropriations Committee for consideration.


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MOORLACH UPDATE — Cellphone Rate Increase — June 28, 2019

Chances are you are reading this on a smartphone. Guess what? Your cellphone has probably become an essential component of your daily routines, but you’re going to pay a higher monthly rate next year (see MOORLACH UPDATE — Clean Drinking Water Funding — June 11, 2019).

Voila! Another regressive tax brought to you by the supermajority party.

Why? Because Sacramento could not see certain systemic trends occurring with the current funding methodology. But, these trends have been occurring for some two decades. Slow to act, but when it does, the bureaucracy hammers you with a major fee hike. The justification? They haven’t increased the fee in decades.

Unfortunately, voting for the 911 tax increase would be akin to approving a "black box." We know that a robust 911 telephone service must be in place. We know that technology has advanced. The unknown is what technology the state will acquire and what the acquisition and maintenance will cost. We know money will go in and that something will come out of the black box, but its internal workings and implementation are opaque.

Consequently, not being provided details and a plan, I voted in opposition to another potentially expensive state IT program, a la the DMV. The state is pursuing this as the private sector is rolling out virtually free applications of a similar nature. Government Technology provides more on the subject in the first piece below.

Now that we’ve opened the topic of an Orange County Veterans cemetery, My News provides another perspective on the three potential sites in the second piece below (see MOORLACH UPDATE — Review of Recent Votes — June 27, 2019).

Bill Would Provide $172M for California 911 System Upgrade

The State Senate last week approved a flat, monthly fee on every cellphone and landline starting in January 2020, which would upgrade the state’s current 911 system. The bill awaits Gov. Gavin Newsom’s approval.


A bill awaiting the governor’s signature would provide around $172 million in funding to update the state’s 911 system.

The Senate last week approved a flat, monthly fee on every cellphone and landline ranging from 34 cents to 80 cents (about double the current fee) starting in January 2020, which would upgrade the state’s current 911 system. The bill awaits Gov. Gavin Newsom’s approval.

The action comes on the heels of the state’s worst fire season, which officials say compounded the already degrading analog-based system, according to a California State Association of Counties press release. The new system will be digital and will be designed to handle photographs, videos and text messages, according to the bill’s text.

The state budget — approved by the Legislature earlier this month — allots $172.3 million for the state Office of Emergency Services (which will oversee the fees that are funding the new system) to improve emergency communication and warning systems, supporting the Mutual Aid system and resource pre-positioning (say, during red flag fire weather warnings), and fund relief efforts after disasters, according to the budget.

The annual revenue needed for the existing system, which handles over 27 million calls per year, is roughly $100 million per year, California Office of Emergency Services spokesman Jonathan Gudel said in an email Wednesday. As the department implements Next Generation 911, the annual revenue needed is estimated to be below $175 million per year during the transition when both Legacy 911 and Next Generation 911 will both be active. After Legacy 911 components are decommissioned, the new system is expected to cost an average of $150 million per year, he said.

“9-1-1 is a service and should not be viewed as a lump sum project, but an ongoing service,” Gudel wrote.

This new data-based infrastructure, called Next Generation 911, is supposed to be faster and more resilient.

Here’s how it works, according to (a national program that operates within the National Highway Traffic Safety Administration at the U.S. Department of Transportation):

The public sends information and data-like video footage to 911. Next Generation 911 call centers receive and triage information and rich data. Wireless networks share the information and rich data from 911 with first responders, who then are alerted to emergencies with real-time, critical information and data. The new infrastructure is also slated to improve dispatchers’ ability to help manage call overload, natural disasters, and transferring of 911 calls and jurisdictional responses based on location tracking.

The current system is prone to outages during disasters including wildfires, according to the California State Association of Counties. In 2017, more than 28 million calls were placed to 911, or 77,000 calls per day. The current system has an average of 15 network outages per month, equaling 255 hours per month that 911 is out of service, according to the press release.

Lawmakers who opposed the fee — Republicans Sen. Patricia Bates, Sen. Andreas Borgeas, Sen. Ling Ling Chang, Sen. Shannon Grove, Sen. Brian Jones, Sen. John Moorlach, Sen. Mike Morrell, Sen. Jeff Stone, Sen. Scott Wilk and Democrat Sen. Melissa Hurtado — preferred dipping into the state’s $21.5 billion surplus. But Democrats said they didn’t want to use short-term surplus for an ongoing expense.

Mike Mohler, deputy director of communications for Cal Fire, said the agency is in full support of the legislation, saying the 911 system is a cornerstone of public safety.

“We’re excited as it makes a difference, not only in public safety but also in response time for first responders,” Mohler said in a phone interview Tuesday. “Without the new investments, the 911 system is going to continue to deteriorate and notably, can cost lives and is absolutely a key factor in public safety and emergency response.”

Last summer, former Gov. Jerry Brown attempted the same fee increase to update the system, but the proposals were shut down in the Legislature.

OC Cemetery District Head Makes Case for Vets Burial Place in Anaheim

The general manager of the Orange County Cemetery District discounted some of the concerns state lawmakers have for a proposed veterans cemetery in Anaheim Hills.

A site in Irvine has been caught in a political power struggle over three proposals there. Orange County Supervisor Don Wagner and state Sen. John Moorlach, R-Costa Mesa, have been pushing for the site in Gypsum Canyon in Anaheim Hills as an alternative.

Assemblywoman Sharon Quirk-Silva told City News Service that one of the main concerns about the Anaheim Hills site is it would not be a strictly veterans cemetery as proposed, so veterans would not be able to use their benefits to pay for burial there.

The difference in cost from a military-funded burial and a private one can be as high as $8,000, said Quirk-Silva, a backer of the Irvine site, along with Sen. Tom Umberg, D-Santa Ana, and Assemblyman Tom Daly, D-Anaheim.

Tim Deutsch, general manager for the Orange County Cemetery District, said that would not be a problem at the Anaheim Hills site because half of it would be dedicated for veterans and would qualify as a state veterans cemetery.

Umberg told City News Service that he does not consider the Gypsum Canyon proposal a veterans cemetery. He also said he prefers Irvine’s sites because of the proximity to the Orange County Great Park, which is built on the former El Toro military base.

The Anaheim Hills site “has no connection to any military historic site like” El Toro, Umberg said.

“The veterans do want a cemetery with some connection to a military experience and El Toro is a site for tens of thousands of Marines which has great relevance and reverence because it was a site from which they departed to go to Vietnam and returned from Vietnam,” said Umberg, a retired U.S. Army colonel.

Umberg also argued that the Anaheim Hills site is within 75 miles of the national military cemetery in Riverside, which is prohibited by the federal Veterans Administration.

Deutsch, however, noted that the proposal in Anaheim is a state veterans cemetery, not a federal veterans cemetery.

Umberg also said the Amended and Restated Development Agreement, or ARDA, site in Irvine is “the only one that’s been really studied,” which is another reason the Democratic lawmakers favor it.

Umberg also said the hilly topography of the Gypsum Canyon site may make it “the most expensive site of” all.

Deutsch said the district hired a consultant this month to begin analyzing how much it would cost to convert the property into a cemetery.

As for Wagner’s concerns that the ARDA site would cost $90 million to clean up to use as a cemetery, Umberg said the cost may be much lower.

“There are a number of ways to make it much less expensive by incorporating the runway into the memorial,” Umberg said.

“And a good chunk of $20 million of it is inflation since the study was done four years ago,” and those rates of inflation may not apply, Umberg said.

“The experts estimate the cost to getting the cemetery in place where it can be useful is $50 million,” Umberg said.

And “that’s roughly the equivalent of what some folks believe” a newly proposed horseshoe-shaped site at the Great Park that was a taxiway, Umberg said.

“There’s no real study of toxins that exist there so we don’t know,” Umberg said.

Umberg predicted that the bill designating the ARDA site for the veterans cemetery will be sent to the governor and “our veterans will have a final resting place here within the next five years some way or another.”

Deutsch said the county needs a new cemetery whether it is for veterans or not because the county will run out of space by 2030. The Anaheim Hills site, he said, satisfies both problems.

“Bottom line is veterans deserve a cemetery and whoever can facilitate that we’re in support of,” Deutsch said.

The Anaheim Hills site would “be a unique opportunity… where families could bury their veteran and take a close walk or drive to visit other relatives, which is something you can’t do at any other veterans cemetery,” Deutsch said.


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MOORLACH UPDATE — Review of Recent Votes — June 27, 2019

It is nice to receive a shout out from time to time, on how I vote on bills. It’s important to be held accountable for my votes as well.

The OC Register’s editorial board provided insights that paralleled the positions I took on two budget bills, SB 78 (see MOORLACH UPDATE — Health Insurance Mandate Penalty — June 25, 2019) and SB 103, in the first two pieces below.

The publisher of the Orange County Breeze shared her eloquent concerns on SB 360 in the third piece below. I have covered this bill as it went through the Senate Committee and Floor process (see MOORLACH UPDATE — Committee Season Has Started — April 3, 2019 and MOORLACH UPDATE — Sacred Votes — May 26, 2019).

I am very concerned about the constitutionality of SB 360, as the litigation costs to the taxpayers for a recent case was expensive ($3 million). But I’m also concerned about the root cause for this bill, with errant priests not being excommunicated, but merely transferred to different parishes around the nation (only to repeat their indiscretions). Consequently, I have abstained on voting on the bill so far.

The proposed Veterans Cemetery has a potential for some funding, but not enough to satisfactorily address the completion of one of the three potential sites (see MOORLACH UPDATE — Veterans Cemetery — March 25, 2019). AB 368’s focus on the most expensive of the three locations has been difficult for a number of my colleagues on the Senate Veterans Affairs Committee to understand. MyNewsLA covers Tuesday’s Committee meeting and the related dynamics in the fourth piece below.

For more on the contentiousness, the Orange County Grand Jury released its report on the topic this week and provides some curious recommendations (see

Supporting our veteran community is one of my priorities. Consequently, I do not want them manipulated or used as pawns in personal agendas. If Sacramento is going to provide funding, then it should do it in total and do it in a location that works to the betterment of all the residents of the county.


Bringing back the individual mandate

On Monday, the California Legislature approved Senate Bill 78, which would bring back the least popular provision of the Affordable Care Act for Californians: the individual mandate.

In 2017, the individual mandate was scrapped by Congress as part of federal tax reform. But there’s no doubt that Covered California, the state’s health exchange, is broken, and Gov. Gavin Newsom sees the individual mandate as key to bringing down the cost of health insurance.

Under SB 78, people who don’t buy health insurance would be subject to penalties of $695 or 2% of their household income, whichever is larger.

Notably, while the Affordable Care Act offers subsidies to individuals making up to 400% of the federal poverty line, SB 78 would offer subsidies to those making up to 600% of the poverty line.

The consequences are clear: low-income people for whom not buying health insurance makes sense will subsidize people who make significantly more money than them.

“This trailer bill, if we pass it today, will take money away from people making $30,000 – $50,000 a year and give it to people making between $75,000 and $130,000 a year,” said Assemblyman Jay Obernolte, R-Big Bear Lake, in opposition. “Colleagues, that makes no sense.”

In the state Senate, Sen. John Moorlach, R-Costa Mesa, raised similar concerns.

Since this is Sacramento we’re talking about, the bill cleared the Assembly by a vote of 57 to 14 and cleared the Senate by a vote of 28 to 11.

Whatever the intentions of supporters of this proposal, this plan to punish people who don’t buy insurance from one of a handful of big companies isn’t going to fix what ails Covered California.

In one sense, Newsom and state legislators are responding to a real problem. Health insurance really is too expensive, and medical costs really are rising too high. But these are the consequences of government distorting and rigging markets, the same approach that gave us the failed Obamacare system both parties now seek to replace.

And while piling more taxpayer- funded subsidies atop the government’s largesse list is never a good idea, it’s an even worse idea to fund expanded subsidies through yet another penalty instead of a standing budget surplus — especially a penalty imposed on shaky grounds in order to force people to pick market winners and losers and buy products they don’t necessarily want or need.

To be fair to Newsom, he’s been handed a less than ideal situation. But health care in California is going to remain a problem unless state and federal leaders walk away from our shambolic and expensive system in favor of restoring real competition that increases choice while lowering costs.

For now, it seems the California approach is to double down on more of the same, pouring more money into failing systems, this time by penalizing people for exercising their freedom of choice.


CCPOA gets its way in Sacramento deal

Public sector unions have far too much influence in state and local government, and last week, yet another example of that played out in the state Senate. At issue was the contract of the California Correctional Peace Officers Association, which represents the state’s prison guards.

The CCPOA spent nearly $3 million in support of Gov. Gavin Newsom’s gubernatorial bid, while also sometimes spending in support of Republicans. It got its reward in the form of a one-year contract with raises described by the nonpartisan Legislative Analyst’s Office as having “weak justification” after finding “no evidence to justify (the) pay increase,” “no clear recruitment problem,” and “no clear retention problem.”

The LAO made similar observations about last year’s CCPOA contract, which the Legislature approved anyway.

This year’s contract, which will cost taxpayers over $130 million, also easily cleared the state Assembly on June 17, with the Assembly voting 75-0, with four members not voting.

The state Senate followed suit on Thursday, with members of both parties speaking in support of the measure.

This included new Sen. Brian Dahle, R-Bieber, who beat out fellow Republican Assemblyman Kevin Kiley, R-Rocklin, earlier this month with the support of the CCPOA. Kiley, who voted against last year’s contract, didn’t vote this time.

Sen. Scott Wilk, R-Santa Clarita, who has also touted support from CCPOA, also spoke in support of the contract. Wilk notably tried to ascribe to “media articles” the LAO’s findings, sidestepping the LAO’s findings in the process. Democrats spoke in support too, including state Sens. Holly Mitchell, Maria Elena Durazo and Bob Archuleta.

In a sense, it’s business as usual, with a big-spending public sector union getting yet another giveaway from state lawmakers. And it’s a reminder that the corrosive influence of public sector unions among both parties.

Credit should be given to Sens. Steve Glazer, D-Orinda, John Moorlach, R-Costa Mesa, Mike Morrell, R-Rancho Cucamonga, and Scott Wiener, D-San Francisco, for voting against the unnecessary giveaway to the CCPOA.

Until more legislators are able to make the correct, logical decisions in the best interests of taxpayers, Californians can expect more of the same.

Room with a view: Weaponizing a religious sacrament


It’s for the children, so it must be okay.

Senate Bill 360 changes the California Penal Code to require clergy hearing “penitential communications” to report persons who confess to child abuse or neglect.

The bill was introduced by California State Senator Jerry Hill (D-CA13). It was approved by the Senate on a vote of 30 ayes, 4 noes and passed to the Assembly. The Senators who voted no were Patricia Bates (R-CA36), Shannon Grove (R-CA16), Brian Jones (R-CA38), and Jeff Stone (R-CA28).

To my immense personal disappointment, local California State Senators Tom Umberg (D-CA34) and Ling Ling Chiang (R-CA29) voted aye.

(John Moorlach (R-CA37) did not vote. I am trusting that he had a good reason.)

Let’s get this out of the way right now: I do not support shielding anybody who abuses children.

What the bill if enacted would require

The bill amends the exemption for clergy in reporting suspected child abuse.

However, this law if enacted would meddle in a sacrament and violate freedom of religion. In short, it is unconstitutional.

According to the Legislative Counsel’s Digest of the bill:

Existing law, the Child Abuse and Neglect Reporting Act, makes certain persons, including clergy, mandated reporters. Under existing law, clergy are required to report whenever the clergy, in their professional capacity or within the scope of their employment, has knowledge of or observes a child whom the mandated reporter knows or reasonably suspects has been the victim of child abuse or neglect, except when the clergy acquires the knowledge or reasonable suspicion of child abuse or neglect during a penitential communication. Failure by a mandated reporter to report an incident of known or reasonably suspected child abuse or neglect is a misdemeanor.

This bill would further define a penitential communication for purposes of the exception. The bill would also exempt from the exemption any penitential communication made between a clergy member and another person employed at the same facility or location as that clergy member, or between a clergy member and another clergy member. By redefining an exemption to a crime, this bill would impose a state-mandated local program.

This is an attempt to break the seal of confession. Despite the mealy-mouthed phrase “penitential communication,” this is aimed primarily at cracking open the Sacrament of Reconciliation. It directly conflicts with the First Amendment right of freedom of religion.

Any Catholic priest who breaks the seal of confession is automatically excommunicated. A priest answers to a Higher Authority than the State of California or the United States Constitution, and that doesn’t mean the Pope. Excommunicated implies that he could not licitly act as a priest. If he continued to perform priestly functions, he would be compounding his mortal sin.

Setting aside the Constitutional and religious issues, how would this be enforced? Will priests now be required to explicitly identify each penitent? Will logs of penitents be required?

And if breaking the seal of confession is desirable in the case of child abuse, why not also for murder or other serious crimes?

I urge our readers to take two steps immediately.

First, email your State Senator to express your opinion about his or her vote on this bill.

Second, email your State Assembly Member to express your opinion before the bill comes up for a vote. Residents of northwest Orange County can find information on our local elected officials page. Others can visit the California State Assembly website.

If the Assembly approves this bill, I expect Gov. Newsom to sign it despite his background as a (lapsed) Catholic. But you should email him, too.

OC Vets Cemetery Clears Hurdle, But Still Dogged by Politics

State lawmakers this week took another step toward funding a veterans cemetery within the Orange County Great Park in Irvine, but Supervisor Don Wagner said Wednesday he hopes to keep pushing for the burial grounds to be located in Anaheim Hills.

Wagner, who was mayor of Irvine before being elected in March to the Orange County Board of Supervisors, said years of infighting over sites in Irvine should be abandoned in favor of a Gypsum Canyon site that is envisioned as a cemetery for veterans, their loved ones and others involved in the Korean or Vietnam wars.

“Irvine can’t get its act together, they can’t figure it out, and the one location (former Irvine mayor) Larry Agran keeps pushing is way too expensive and doesn’t make any sense, so I’ve pretty much thrown my hands up in the air with Irvine since we already have a perfectly good site in Anaheim Hills,” Wagner told City News Service.

On Tuesday, the state Senate’s Veterans Affairs Committee voted to approve a bill by Assemblywoman Sharon Quirk-Silva, D-Fullerton, that would designate the preferred cemetery site as 125 acres within the Orange County Great Park that used to be part of the former Marine Corps Air Station El Toro. It’s known as the Amended and Restated Development Agreement, or ARDA, site.

“I think the state is pushing the ARDA site because Sharon Quirk-Silva has been trying to get something done for the longest time and has not been able to because Irvine hasn’t been able to, and I think she is fed up with the issue — to heck with it, let’s go with ARDA,” Wagner said.

Quirk-Silva did not dispute that contention and said it was up to Irvine officials to make it happen. Irvine officials tried to pitch a new “horseshoe” site at the Great Park right before this week’s committee hearing, she said.

That site — called the golf site since it was zoned for a golf course — is backed by the Great Park developers, who have offered $28 million for the project, Quirk-Silva said.

Wagner said the main problem with the ARDA site is a $90 million estimate to clean it up. “So if you get $20 million this year and $20 million next year … they have to do this four more times,” he said.

“If everybody steps back and says, you know what, it is too big a nut to crack in Irvine so let’s everybody agree that for the good of the veterans let’s go with Anaheim Hills because that can be done tomorrow,” Wagner said.

Anaheim officials have no objections and the county board is backing the Gypsum Canyon site, Wagner said.

Wagner is pushing to have Quirk-Silva’s bill amended to have the Gypsum Canyon site funded instead. But he said he believes there are some politicians in Irvine who just want the issue to run on into the next election cycle and after.

“They’re using the veterans as pawns,” Wagner said.

The supervisor said he is hopeful that Sen. Tom Umberg, D-Santa Ana, who is a veteran, will be receptive to the Anaheim Hills site. Umberg has backed Quirk-Silva’s bill, along with Assemblyman Tom Daly, D-Anaheim.

Quirk-Silva said one of the main issues with the Gypsum Canyon site is that it would not be a strictly veterans cemetery as proposed.

“Unless it is a state or federally run cemetery, then the military people could not use their benefits there, so that’s the biggest thing,” Quirk-Silva said.

The difference in cost between a military-funded burial and a private one can run as high as $8,000, she said.

There are also some questions about whether the Gypsum Canyon site would be a challenge to modify for a cemetery because of its hills.

“There’s still quite a bit of other issues such as getting in the roads and infrastructure and also that it’s on a hilly grade that would be pretty difficult to work with,” she said. “It doesn’t mean it would be impossible, but there still would be a cost to use that site.”

Quirk-Silva also said an expert has advised that it might not cost up to $90 million to clean up the ARDA site; that money could potentially be saved by adding soil instead of digging up the contaminants.

Quirk-Silva said she would like a “face-to-face” meeting among the stakeholders to discuss the newly proposed site in Irvine. But she said the horseshoe shape of that site might make it harder to accommodate a cemetery.

Quirk-Silva said she has an open mind on Gypsum Canyon, but wants to keep working on an Irvine site.

“If we absolutely can’t get anywhere with Irvine, maybe we go down that pathway,” Quirk-Silva said. “This has been sadly more political than I think anybody envisioned, especially myself.”

Sen. John Moorlach, R-Costa Mesa, agreed, saying he has been trying to alert lawmakers in Sacramento voting on the issue that “it’s a little contentious down in the district.”

Moorlach said he has seen an estimate that it would cost $58 million to remediate the newly proposed golf site in Irvine.

“Some of the veterans are saying we should just go with the golf course site because at least we’re getting closer to achievability,” Moorlach said.

Moorlach also noted that Arlington and the cemetery in Normandy, France, are hilly, “so it seems to me a little more dramatic and inspirational” to build the cemetery in Anaheim Hills.


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MOORLACH UPDATE — Health Insurance Mandate Penalty — June 25, 2019

The Book of Proverbs in the Old Testament, written mostly by King Solomon, is replete with exhortations to not oppress the poor. Consequently, I followed up on the observation I made in my last UPDATE (see MOORLACH UPDATE — Half Empty Reserve Concerns — June 24, 2019).

Yesterday afternoon, on the Senate Floor, I asked if 82% of the lower salaried taxpayers in the state paid for the Affordable Care Act mandate penalty in 2014. I did not receive a direct response. We were told the lower-paid residents would receive a supplement to offset their medical insurance costs.

I guess our lower-earning residents, like those just starting their careers, will have to do more math. Which is less expensive? Paying health insurance premiums and, hopefully, receiving some form of state subsidy, or just paying the mandate penalty?

Giving Medi-Cal to undocumented residents is unbelievable just by itself. But, forcing poorer legal residents to underwrite, by restoring the Affordable Care Act mandate penalty in California, it is oppressive. The trailer bill to do this was approved on a party-line basis, with one Democrat abstaining.

The Associated Press covers the topic in the KCRA Channel 3 piece below.

California Legislature OKs health insurance mandate

By Adam Beam

The California Legislature voted Monday to tax people who refuse to buy health insurance, bringing back a key part of former President Barack Obama’s health care law in the country’s most populous state after it was eliminated by Republicans in Congress.

The tax now heads to Democratic Gov. Gavin Newsom, who proposed a similar plan in January – an indication he will likely approve it.

The federal Affordable Care Act required everyone to buy health insurance or pay a penalty. The U.S. Supreme Court upheld the law, ruling the penalty was a tax.

In 2017, Republicans in Congress eliminated the penalty – beginning this year – as part of an overhaul of the federal tax code.

The bill passed by Democrats in California would reinstate the tax, effective Jan. 1. No Republicans voted for it. One Democrat in the state Assembly – Rudy Salas Jr. – voted against it.

The penalty won’t apply to everyone, including people living in the country illegally. Lawmakers on Monday also approved a bill that would expand government-funded health insurance to low-income young adults living in the U.S. illegally.

People in prison and those who are members of an American Indian tribe are also exempt, mirroring what had been in the federal law.

Democrats say the plan is part of their efforts to make sure everyone in California has health insurance.

If the bill becomes law, California would join Massachusetts, New Jersey, Vermont and Washington, D.C., next year as the only governments in the U.S. to penalize people who don’t buy health insurance.

It would also make California the only state to use money it gets from the penalty to help people who earn as much as six times the federal poverty limit pay their monthly health insurance premiums.

That means a family of four earning up to $150,000 a year would be eligible.

“These new subsidies will impact almost 1 million Californians and help them get the health care access that they deserve,” said Democratic Assemblyman Phil Ting of San Francisco.

Republican state Sen. John Moorlach said in 2014 that 82% of Californians who paid the penalty for not having health insurance had taxable incomes of $50,000 or less.

“This trailer bill will take money away from people making $30,000 to $50,000 a year and give it to people making between $75,000 and $130,000 a year,” GOP Assemblyman Jay Obernolte said. “That makes no sense.”

The state has already extended government health benefits to children living in the country illegally. The plan approved Monday would extend that coverage to people as old as 25.

While the proposal easily passed the Legislature, it brought a rebuke from Democratic Sen. Maria Elena Durazo from Los Angeles. She criticized the bill for not providing health care coverage to people 65 and older living in the country illegally.

“We’ve missed an opportunity to create fairness and inclusion,” she said.


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MOORLACH UPDATE — Half Empty Reserve Concerns — June 24, 2019

The Sacramento Bee continues with my concerns about the glass being half empty in the piece below (see MOORLACH UPDATE — Biggest Budget, Biggest Deficit — June 10, 2019).

“I’ve been voting no or abstaining on a lot of spending opportunities,” Sen. John Moorlach, R-Costa Mesa, said. “Some people think the glass is half full, I’m looking at it as half empty, so that will maybe explain my caution on a lot of these spending votes tonight.”

The piece does a good job of sharing the concerns I’ve been expressing this year on the Budget Conference Committee, in the Senate Budget & Fiscal Review Committee and on the Senate Floor. Time will tell whether my prediction is correct or whether it was a lack of confidence in the potential of an ongoing growing economy under our current President. Speaking of predictions, you’ll enjoy the Look Back.

25th Anniversary Look Back

The summer of 1994 would be quiet, except for the O. J. Simpson drama resulting from the brutal murder of OC native Nicole Brown Simpson.

Bill Lobdell, in his regular Daily Pilot "Editor’s Notebook" column of June 25, 1994, had a little fun with his piece, titled "Reinecke will concede vote if and when . . . " Among many other humorous predictions:

Costa Mesa arch-conservative John Moorlach will appear on a Democratic mailer, sharing endorsement space with Dianne Feinstein and Kathleen Brown (Oops! That’s already happened.)

Another one was:

Angels will win the World Series.

(Oops! That actually did happen eight years later!)

But, speaking of Major League Baseball, Bill Lobdell would print my Daily Pilot editorial submission, titled "Far From ‘Scuzzy’ — Candidate says his campaign for treasurer took high road." It’s provided in full. For more on Fred Martin’s barbs, see MOORLACH UPDATE — Biggest Budget, Biggest Deficit — June 10, 2019 and MOORLACH UPDATE — Clean Drinking Water Funding — June 11, 2019.

The piece would even include this photo:

From left: John Moorlach (with his son, Daniel) talks last year with fellow conservatives [U.S.] Rep. Dana Rohrabacher, {OC} Supervisor Tom Riley.

I would like to say thanks to those Daily Pilot readers who voted for me. Probably being the only Costa Mesan to have ever run for a countywide seat, I am appreciative of your encouragement and support.

Running for Orange County treasurer-tax collector was a great experience. While not being a well-known personality, I was happy to obtain nearly four out of every 10 votes cast, with a much better showing in this paper’s readership area.

In fact, I also ended up being the highest vote getter in my other race, that of the Republican Central Committee in the 70th Assembly District, just edging out Newport Beach Councilwoman Evelyn Hart.

My treasurer’s campaign focused on trying to educate the public about Bob Citron’s complex and super-speculative investment approach. It was very difficult to do, but many understood. In a nutshell, his portfolio is a major league gamble that interest rates will continue to go down from their already 30-year lows. What happened during the campaign? The Federal Reserve Board raised rates four times and brought my point close to home.

Since Mr. Citron would not debate me during the campaign, I spent time trying to educate the reporters covering it, even giving them copies of the portfolio, which I finally received a month before the election. Unfortunately, you can lead a reporter to water but you can’t always make them think. This is even more true for those reporters and editorial writers of the liberal persuasion.

The media defended and protected their lone Democrat. Fred Martin’s recent vitriolic statements about my campaign are a good case in point.

I know you shouldn’t get into a pissing contest with a skunk, but Fred’s anti-conservative rhetoric should at least receive a response. Fred stated that I ran a "scuzzy" campaign. I beg to differ. I believe I ran a clean campaign that had a message, dealt with the issues, and questioned the incumbent’s management, while never attacking his character.

Counter Point 1 – Fred claims that I tried to "denigrate incumbent Robert L. Citron because he is a Democrat." Not true. The most difficult task I faced was how to inform the voters that he was a Democrat. Fortunately, Mr. Citron and the press did that heavy lifting for me. Mr. Citron kept referring to my campaign as some type of partisan plot. Give me a break. It is preferred that Republicans challenge Democrats, this made the treasurer’s seat fair game for someone who was qualified and willing to serve his community.

Counter Point 2 – "Spending . . . Republican dollars to get (my) name and mug shot in a ‘Democratic Voter Guide.’" Here Fred really shows his double standards. Liberals can, but if conservatives do, then watch out. Mr. Citron purchased space on Republican slate mailers. He caused me to negotiate harder to get on the few that I did. I’m sure Fred is ignorant about the economics of politics, but I did need to reach Democrats, too.

Counter Point 3 – "One Moorlach supporter went so far as to endanger Orange County’s unblemished credit record by repeatedly contacting New York bond-rating services and financial media, trying to get them to investigate Citron."

Again, Fred should have done a little more research here. This supporter was a third candidate in this race. He is a reputable Newport Beach investor who is a major player in the financial market, a highly quoted expert on corporate bankruptcy, and the chairman of a large publicly held corporation. He eventually did not file to run against Citron, but he knew what risks were being taken and wanted Citron replaced for the sake of his community and County.

Counter Point 4 – Fred asserts that I tried to "terrify the citizens by alleging that Citron’s complex investment strategies are going to lose all the county’s money." I never states or implied that all of the money would be lost. I did say that his portfolio was down $1.2 billion ($1,000 per registered voter); a conservative estimate. I requested the county’s market values, but Citron refused to give them. I stuck to Citron’s performance, Citron skirted the issues.

Citron has borrowed $14 billion to invest ($5,600 per county resident) with $8 billion of it borrowed and invested near the top of the bond market. He invested $5.5 billion in derivatives. He incurred over $300 million in collateral calls during the campaign, which translates into a major loss in equity. Many counties would like to have $300 million to invest, let alone lose.

My message was simple: higher returns equal higher risks. Without belaboring the point, time will tell whether I was correct or whether it was a bum rap.

Mr. Citron finally had a challenger after 23 years and it was good for the system, Citron, and the public. Unfortunately, Fred, it was Citron who ran a scuzzy campaign based on obfuscating the true risks he has taken.

Many voters understood the truth. That is why I obtained a good portion of the vote for the first time out of the chute. I’m not embarrassed nor do I fell that I compromised my standards. It’s unfortunate that grumpy Fred can only look at it through his anti-conservative Republican glasses. I’ll see you down the road, my friend. Perhaps I’ll do something to earn and be honored by your biased ink again.

Getting ready for recession,

California’s $215 billion budget

fills reserves. But is it enough?


Stung by severe cuts to services in the Great Recession, California lawmakers are riding the state’s booming economy to put more money than ever into savings accounts meant to soften the hurt of the next downturn.

They just don’t know if it’s enough.

Altogether, the budget Gov. Gavin Newsom will sign this week aims to build up reserves to more than $19 billion in four separate savings accounts by next year.

One account, the so-called rainy day fund with $16.5 billion, can only be tapped in a recession. Another unlocks funding for social services. One more piles up $400 million for education, and the last one is projected to hold $1.4 billion for emergencies and natural disasters.

It’s an unprecedented sum for a state that’s famous for its boom-and-bust budgets.

“We’ve never taken action to be prepared before,” said Sen. Holly Mitchell, D-Los Angeles, chairwoman of the Senate’s Budget Committee. “We’ve only managed by expanding and cutting, cutting and expanding. This is the first time we’ve had something considered a safety net reserve.”

Mitchell a dozen years ago led one of the largest nonprofit agencies in the state, which delivered assistance to low-income families. She had to take out loans to keep checks moving to families every time the Legislature failed to pass a budget on time.

To her, the reserves represent an effort to end the cycle of welfare cuts and IOUS that characterized the years of chronic deficits and prolonged budget battles. In 2009, the state faced a $42 billion deficit. This year, it’s projecting a surplus greater than $21 billion.

“We have worked for years to get to this,” Senate President Pro Tem Toni Atkins, D-San Diego, said last week.

But others argue the Democratic governor and Legislature could do more to guard against the reductions they may have to make in a recession.

The nonpartisan Public Policy Institute of California last month issued a report suggesting the state had adequate reserves for a mild recession, but could see revenue fall by to $185 billion over five years in a severe downturn. The Legislative Analyst’s Office also has consistently made a case for more savings this year.

“By building even more reserves than it already has, the Legislature could mitigate the need for program cuts, tax increases, or spending deferrals when the next recession strikes,” Legislative Analyst Gabriel Petek wrote in April.

California and the U.S. as a whole now are in one of the longest-ever periods of economic growth. Newsom and lawmakers say they know a recession is on the horizon. Here’s a look at what keeps California budget hawks up at night, and what comforts them.



When California’s wealthiest residents catch a cold, the state’s budget gets the flu.

California collects 70 percent of its general fund revenue from personal income tax, and almost half of that money comes from the state’s wealthiest 1 percent of households, according to the Public Policy Institute of California report.

The ratio leads California tax collections to swing dramatically in recessions because wealthy taxpayers are less likely to cash in big bonuses or capital gains in down economies.

California has taken a number of steps to moderate its tax volatility since the Great Recession, but its fundamental reliance on the wealthiest households persists.


While state leaders in Sacramento sock away a surplus, school districts and local governments around California are raising taxes and trimming their budgets.

Sacramento County, for instance, approved a budget this month with $43 million in cuts. School districts from Sacramento to Paso Robles are reporting financial trouble, too.

In general, schools and local governments are reporting tight margins because of the rising cost of funding their employees’ pensions and benefits. Newsom’s budget offers schools some help by making supplemental payments toward their pension debts at the California State Teachers’ Retirement System, but Republicans say the financial distress is a sign that more severe cuts will come.

“Here we are in a time of plenty, and I don’t see any money other than the amount flowing to CalSTRS to help out local school districts. I don’t see anything going to help cities or counties. They’re going to be hit really hard,” said Sen. John Moorlach, R-Costa Mesa.


Despite the surplus, some California state leaders talk about the economy in terms of looming austerity.

Devastating wildfire seasons can wipe out savings in a heartbeat, for instance. Newsom is proposing a $24 billion plan to prepare for the kinds of catastrophe that wiped out Paradise and parts of Santa Rosa over the past two years.

Meanwhile, changes in the way people work can alter how they pay taxes. The gig economy and robotics could lead to fewer Californians paying payroll taxes.

Those changes are hard to predict, and they could lead to serious consequences in a downturn.

In a recession, “it will all converge in terms of challenges we have,” State Controller Betty Yee said. “The best thing we can do now is just keep building up these reserves.”



The rainy day fund and other state savings accounts are designed to cushion cuts in a recession, and lawmakers plan to use them when the time comes.


Since the Great Recession, California voters and lawmakers adopted a number of new taxes that will keep money flowing to the state in a downturn. They include:

· Proposition 55, the voter-approved tax on households with incomes greater than $250,000 that expires in 2030.

· The gas tax, a 2017 law that aims to raise about $52 billion for transportation projects over a decade.

· Cannabis taxes are coming in below initial projections, but they’re still on track to raise hundreds of millions of dollars for programs every year.

· And, California now demands that out-of-state online retailers collect state and local taxes on behalf of their Golden State customers. That wasn’t the case a decade ago.


Some parts of Newsom’s budget avoid ongoing commitments by committing to only temporary funding.

One example is a measure that eliminates sales tax on diapers and tampons for just two years. The short window lets lawmakers decide whether they want to continue the tax breaks and services if the economy changes.

The Legislative Analyst’s Office last month projected that Newsom’s budget included $1.8 billion in spending that would “sunset within a couple of years.”


Newsom and the Legislature celebrated paying off the “wall of debt” the state accumulated during the recession. Former Gov. Jerry Brown chipped away at the $33 billion in liabilities during his terms, and the new budget puts away the last of those short-term debts.

To be sure, California still owes tens of billions of dollars that it doesn’t have on hand for pensions and other debts, but clearing Great Recession debts heartened lawmakers who were in the Capitol when they last made serious cuts.

“If you look at the new revenue, 82 percent of this surplus money either goes to a reserve account of which there are a number, pays down (debt) or pre-pays pensions,” Senate Majority Leader Bob Hertzberg, D-Los Angeles, said last week. “It evidences a level of responsibility of where we’re focused.”


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MOORLACH UPDATE — Wildfire Fund and the Poor — June 22, 2019

Last year, SB 901 set up the Commission on Catastrophic Wildfire Cost and Recovery. The Commission recommended creating a fund as a backstop for wildfire victims to address utility viability and residence insurability moving forward (see MOORLACH UPDATE — A Seriously Taxing Budget — June 14, 2019 ).

Gov. Newsom just introduced his version of the recommendations. The Wall Street Journal provides Friday’s announcement in the piece below.

I was there in 2001 during the energy crisis that forced PG&E into Chapter 11 the first time. The solution then? A "temporary" surcharge on customers. And it was set to expire in 2020.

The Governor’s proposal is to continue the surcharge. My concern? It impacts the poor in a much more significant manner, as a percentage of disposable income, than those with annual earnings above the poverty level. And, PG&E customers are already paying higher rates compared to the rest of California and other states.

The poor, who commute to their jobs, will see a gas tax increase in a few days (see MOORLACH UPDATE — Award, Rankings and More Taxes — June 21, 2019). So, what is Sacramento doing to help the poor? Sadly, it’s the opposite. It is hurting and harming the poor.

The poor, who now see a smartphone as a necessity, not a luxury, will find their phone bills rising as much as 80 cents per month. This may be small potatoes for someone earning more than $100,000 per year, but not someone working full time in a minimum wage job with high housing costs (see MOORLACH UPDATE — A Seriously Taxing Budget — June 14, 2019).

The poor, who were relieved when President Trump recently removed the health insurance mandate tax penalty on their Federal income tax returns, may see it again on their California income tax returns. The Legislature votes on this new revenue source next week.

Research of Federal income tax returns has found that, during the years 2014 to 2016, Californians who earned $50,000 or less paid 82% of the individual mandate penalties. Those earning less than $25,000 represented 45%, nearly half. And those earning between $25,000 to $50,000 paid 37%. These are California’s poor!

And they will be paying the mandate again because Governor Newsom wants to underwrite health care benefits for undocumented individuals (see MOORLACH UPDATE — ACA Penalty Tax — June 19, 2019). How ironic is that?

The "flush" budget gives an amazing number of dollars to pet projects in districts around the state, but the poor are being taxed more (see MOORLACH UPDATE — $214.8 Billion Budget Approved — June 13, 2019). How does this even make sense?

At least the poor dodged a bullet by not seeing their water bills increase. Water is a necessity and a necessary expense for everyone. The Governor is using cap and trade revenues to address safe drinking water concerns instead (see MOORLACH UPDATE — Clean Drinking Water Funding — June 11, 2019). But, the poor will bear the cost indirectly in their gasoline prices.

Taxpayers at the local level, who usually come to the rescue for their local schools, opposed a parcel tax earlier this month in Los Angeles (see MOORLACH UPDATE — Results Released — June 6, 2019). Maybe the personal budgets of the middle class are also over extended?

How can the poor ever break the cycle of poverty when Sacramento weighs them down with more levies on their necessity for gas and cell phones and, for many, an inability to afford medical insurance? What about their solvency?

Gavin Newsom Proposes Wildfire Fund to Bolster PG&E, Other California Utilities

Governor’s plan is designed to help companies cover fire costs that have threatened their solvency

By Alejandro Lazo and
Katherine Blunt

Gov. Gavin Newsom is proposing a multibillion-dollar wildfire fund to help California’s utilities cover mounting fire-related liability costs that have threatened their financial health.

The fund is part of a wider regulatory overhaul the Democratic governor unveiled Friday as he seeks to reach consensus with state lawmakers on fixing the crisis created by the collapse of PG&E Corp. , which sought bankruptcy protection in January after its role in sparking wildfires created more than $30 billion in potential liabilities.

Concerns about massive wildfire-related liability costs are also weighing on California’s two other major investor-owned utilities, Edison International ’s Southern California Edison and Sempra Energy’s San Diego Gas & Electric, spurring downgrades to their credit ratings and putting pressure on politicians to act.

Mr. Newsom outlined two possible models for a wildfire fund—one valued at $10.5 billion and another at $21 billion, aides to the governor said.

The $10.5 billion proposal would be structured as a revolving loan funded by extending a surcharge on electricity bills and securitizing the revenue through state-issued bonds. The $21 billion proposal would double the amount by including an insurance policy requiring a $10.5 billion contribution from the three utilities.

Under Mr. Newsom’s proposal, Southern California Edison and San Diego Gas & Electric would choose which option they prefer, with PG&E bound by whatever they decided but excluded from the decision-making process, the governor’s aides said.

“PG&E’s leadership is committed to continuing to work with the governor and all stakeholders on shared solutions that will compensate wildfire victims fairly and equitably and mitigate the ever-growing threat of wildfire risk,” the company in a statement.

Mr. Newsom is aiming to navigate pressure from Wall Street to limit utility exposure to wildfire risk, which has grown in recent years amid drought and climate change, while avoiding criticism from activists that California is bailing out PG&E, which has gone bankrupt twice in the past two decades.

“This does a relatively good job of trying to walk that line,” said Height Securities analyst Clayton Allen.

If Mr. Newsom’s fund proposal is approved by the state’s Democratic-dominated legislature, California utilities could use the money to offset future liability costs stemming from deadly wildfires. An unusual state constitutional provision puts utilities on the hook to pay property damages resulting from fires sparked by their equipment.

But they couldn’t use the fund to help cover costs from prior wildfires, such as last year’s Camp Fire, California’s deadliest ever, which killed 85 people and destroyed the town of Paradise. State investigators in May concluded that PG&E equipment sparked the fire.

To access the fund, the utilities would have to comply with upgraded safety criteria. They also would have to collectively spend $3 billion on fire-detection technology such as weather stations and cameras. The companies would have to pay for those improvements without earning any additional profit on the spending through customer charges.

Edison said it is reviewing the details of the proposal. “We appreciate the governor’s continued sense of urgency on this important matter that impacts all Californians,” the company said in a statement.

Mr. Newsom has also proposed a new division of the utilities’ primary regulator, the California Public Utilities Commission, charged with setting more stringent safety standards for the utilities and periodically reviewing their safety cultures, the aides said. Utilities would have to get a new annual safety certification from the division in order to tap the wildfire fund.

The governor is hoping state lawmakers will act to create the fund by July 12, before they take a month long summer break, aides said.

“I am ready to work all night,” said state Sen. Henry Stern, a Democrat who represents parts of Ventura and Los Angeles counties that were hit hard by wildfires in 2017 and 2018. “But it’s hard to predict if everyone has the energy to get this done before we leave for the July recess.”

State Sen. John Moorlach, a Republican from Orange County, said he didn’t like the extension of the surcharge on utility bills to pay for the wildfire fund. “It has a real impact on the poor and it also has a real impact on industry,” he said.

Driving the timetable is PG&E’s bankruptcy. Mr. Newsom has pressed the utility to quickly file a plan of reorganization, telling the bankruptcy court last month that the utility hasn’t “demonstrated that it understands the gravity and urgency of the situation.”

State investigators have tied PG&E equipment to 19 wildfires in the past two years, and homeowners, businesses, cities, insurers and others are seeking compensation for billions in damages from the company, an issue that will now be resolved as part of the bankruptcy process.

Credit-rating firms have also said they would further downgrade Southern California Edison and San Diego Gas & Electric if lawmakers don’t address the issue this summer, over concerns that PG&E’s liability problems could spread to the other companies if significant wildfires hit southern parts of the state.

Moody’s Investors Service analyst Jeff Cassella said the governor’s proposal had the potential to bolster the utilities’ credit ratings, but that the extent of the relief would depend on the details of the fund structure.

After meeting with lawmakers recently, Citi analyst Praful Mehta wrote that there was momentum in Sacramento to accelerate PG&E’s emergence from bankruptcy and bolster the state’s other utilities, calling it “very likely” that legislation passes by summer’s end.

Still, finding political consensus on a rescue plan could prove politically challenging, given the unpopularity of PG&E following years of fires.

Under Mr. Newsom’s proposal, the Southern California utilities would have 15 days after legislation is enacted to decide which of the wildfire fund options they prefer. The smaller option would be a “liquidity fund” that would essentially serve as a revolving line of credit funded by extending a surcharge California electricity customers have been paying since 2002.

That year, the Department of Water Resources issued bonds to pay down debt following the state’s 2001 electricity crisis. The surcharge had been set to expire in 2020. Extending it could produce about $870 million a year, which aides for Mr. Newsom estimated could be securitized over 15 years into a $10.5 billion fund.

The fund would provide cash up front to cover claims while the utilities collect the money needed to reimburse it over time. Only utilities determined to have acted prudently in managing their operations could recoup those costs from ratepayers. Otherwise, investors would foot the bill.

The larger option would require utilities to pay $7.5 billion up front and $300 million annually for 10 years to create what Mr. Newsom’s aides labeled an insurance fund that would provide greater liability protection and potentially cover some costs resulting from mismanagement. A utility that had acted safely would have full access to the fund and no reimbursement requirement. But a utility found to have acted irresponsibly would be required to pay a deductible in order to tap it and could not raise customer rates as a result.

Mindy Spatt, spokeswoman for The Utility Reform Network, a consumer advocacy group, expressed skepticism that the proposal would protect utility customers from paying higher electricity prices. She also criticized the surcharge extension as a means of capitalizing the fund.

“When those charges were added to customers’ bills, we were told they were temporary,” she said.

PG&E would have to resolve its existing claims and exit bankruptcy by June 30, 2020, or be shut out of the fund entirely.

“There will only be one fund,” an aide for the governor said. “So PG&E is stuck with whatever gets built.”


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