MOORLACH UPDATE — LAUSD Comes Calling — January 19, 2019

This past week, Sacramento found LAUSD and PG&E knocking on the Capitol’s front door.

I pursued an effort to prevent the deadly wildfires caused by sparking electric lines, which has now subjected Pacific Gas & Electric to an enormous liability exposure, with SB 1463 (see MOORLACH UPDATE — SB 1463 And The Facts — November 19, 2018).

I also recently provided a complete listing of California’s school districts in order for my colleagues to have measurements from which to manage. The Golden State’s school districts have reasonable revenue streams, but it appears most have allowed their teachers’ unions to overreach with salary increases, defined benefit pensions, and retiree medical benefits. I would defy you to find a large employer in the private sector that comes close to maxing out on all three of these fronts.

I am sympathetic. One of my two brothers is a school teacher. One of my two sisters-in-law was also a teacher. Both for districts in Orange County. I was the Treasurer for Orange County’s school districts for nearly a dozen years. I want school teachers to be compensated fairly, but I also want school districts with balanced budgets and strong balance sheets. Otherwise, total compensation packages are in jeopardy.

Obviously, something is amiss. A fiscally strapped school district cannot make additional hires or provide pay increases. Consequently, the United Teachers of Los Angeles is doing additional harm to a governmental agency that is already on the proverbial ropes.

The LA School Report returns with another review of the numbers; nine numbers to be specific (see and/or I’m mentioned in the piece, but it repeats a previous mention (see MOORLACH UPDATE — Dealing With Tensions — January 10, 2019).

The California Globe provides a review of my recent quotes and editorial submissions in the piece below. The MOORLACH UPDATE is having an impact. And you can see that Republicans in the super-minority are addressing the issues of the day in areas where the Democrats have been languishing for decades.

The students of LAUSD have already missed out on a week of services. Let’s hope next week finds the two parties appreciate the fiscal realities, realize the school board is negotiating in good faith, and stand down.

Wishing you a solemn Martin Luther King, Jr. three-day weekend.

Senator: LAUSD Budget Crisis Could Take Down State Budget

Moorlach warns crippling long-term debt may doom the school district and the state

By Katy Grimes

While the Los Angeles Unified School District contract negotiations with the Unified Teachers of Los Angeles labor union led to a massive strike this week, the fight over hiring more teachers and school staff in the nation’s second largest school district may likely be a moot point if LAUSD’s total $25.9 billion deficit is not dealt with.

California State Sen. John Moorlach (R-Costa Mesa) has issued many warnings about the Los Angeles Unified School District budget crisis, saying it is so big it could wipe out the California budget surplus… and perhaps the state budget.

“The main culprit in negative CAFRs is unfunded pension liabilities,” Moorlach wrote in a recent op-ed for California Globe.

The LAUSD has the largest unrestricted net deficit of any California school district, at $10.9 billion, Moorlach said. And now that the district has to report the retiree medical unfunded liability on the balance sheet means it will increase LAUSD’s deficit by another $15 billion… the amount of the state’s budget surplus, which is “a mirage,” says Steven Greenhut for R “The budget surplus doesn’t take into account the size of California’s unfunded pension and medical liabilities for public employees.”

“LAUSD doesn’t have two nickels to rub together,’ Moorlach told LA School Report. His research ranked the district’s per-person contribution cost as one of the highest among California’s 944 public school districts.

Moorlach’s 2018 report, “Financial Soundness Rankings for California’s Public School Districts, Colleges & Universities,” found two-thirds of the 944 state school districts “bleed red ink.”

The Senator’s report found the worst school district was Los Angeles Unified at $10.9 billion in the red. Closely behind is San Diego Unified at -$1.5 billion, Fresno Unified at -$849 million, San Francisco Unified at -$770 million, Long Beach Unified at -$564 million, and Sacramento City Unified at -$540 million.

Sen. John Moorlach. (Katy Grimes for California Globe)

Moorlach’s report found only seven districts in the whole state with enrollment of 2,000 or more were in the black.

“School districts that utilize California’s Financial Crisis & Management Assistance Team (FCMAT) for emergency loans usually request amounts that are at a minimum two times, with most multiple times more, the size of their unrestricted net deficits,” Moorlach warns. “Oakland Unified’s unrestricted net deficit in 2003 was $48.7 million when it was loaned $100 million. South Monterey County Joint Union High’s unrestricted net deficit was less than $2 million when it borrowed $13 million,” he said.

“It looks like LAUSD will have an unrestricted net deficit of $25 billion!” Moorlach said. “If it comes to the state for a loan from FCMAT, where will Sacramento find $50 billion to lend it?”

While Moorlach recommended offering early retirement incentives as a cost-cutting measure, one of the demands the striking LA teachers union has is more teachers, staff and administrators. Moorlach said when a San Diego area school district board voted in December to offer early retirement incentives, the San Diego County Office of Education voted to take away the school board’s decision-making control.

“United Teachers Los Angeles has rejected the district’s proposal to shave off costs by adding two years to how long it takes new employees to become eligible for free lifetime health benefits — something other L.A. Unified unions have already accepted,” said the LA School Report.

Sen. Moorlach warns against a blanket bailout of school districts by the state. “He’d support increasing education spending if he had some assurances that unions would give ground on negotiable benefits like retiree health care,” the Sacramento Bee reported. “We can’t just give districts that have not been good stewards more money. You have to ask for something in return,” Moorlach said.

On his own blog, JOHN MOORLACH’S POSTINGS, he writes:

“Sacramento City Unified has a population of close to 350,000 and covers a significant amount of real estate in the Capital area. It is also having issues… but at least its teacher’s bargaining unit is not as out of touch as LAUSD’s and has not called a strike. But it threatened to strike in 2017. The school district board of trustees gave in and granted wage increases, but now look where that has brought them.”

“I warned that the new Governor’s first crisis may be the school districts. The drum beats on this topic continue to grow louder with each passing week.”

Gov. Gavin Newsom has not involved himself in the LAUSD strike, and has issued only one statement: “Last week, I submitted a budget to the Legislature that would make the largest ever investment in K through 12 education, help pay down billions in school district pension debt and provide substantial new funding for special education and early education,” Newsom said.

“LAUSD’s Unrestricted Net Positions per capita is three times that of the average for the entire Orange County!” Moorlach said. “That’s how massive LAUSD’s fiscal hole is… So, this CPA doesn’t know where the union demanded pay raises are going to come from.”


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MOORLACH UPDATE — Senator Robert M. Hertzberg — January 15, 2019

After arriving in Sacramento in March of 2015, my first legislative hug was from Senator Bob Hertzberg. Senator Hertzberg is very sociable and warm to both sides of the aisle.

He has had a longstanding relationship with former Republican Assembly Leader Scott Baugh of Orange County. A couple of years ago Scott brought his son, Jackson, up to visit and spent some time with the good Senator. They referred to it as a “Baugh Mitzvah.”

I, too, enjoy my relationship with the good Democratic Senator from Los Angeles and the LA Daily News provides a glimpse of it in the profile piece below.

Bob Hertzberg embraces an active final term in California Legislature

Former Assembly speaker is a leader again, unbowed by political changes, his #MeToo controversy

By kmodesti | Daily News

After more than a decade out of public office, Bob Hertzberg strode back into Sacramento four years ago to find state politics had changed. The game was different, with new rules and a new online playing field. The players were new, too, and no longer called him Mr. Speaker.

Not all of them enjoyed what he viewed as a friendly hug, the way human beings used to.

The one-time California Assembly boss, one-time Los Angeles mayoral contender and all-time big thinker said recently of his first term in the state Senate: “It’s been much harder than I anticipated.”

If you think this discouraged Hertzberg, you don’t know Hertzberg.

The now-gray-haired Democrat recently sat in the backyard of the Van Nuys home he shares with his girlfriend, Cal State L.A. criminology professor Katharine Tellis, as well as female mutt named Quinn and mementos of five decades in politics. He talked about the Senate term just past, and the one that started Jan. 7. He was the same ticking package of personality and brainpower as he ever was.

He would lean forward to discuss such gripping topics as bail reform and the political effect of legislative rule changes that allow a budget to pass with a simple majority. He would recede into his soft chair when forced to address the run-in with the #MeToo movement that might have cost him a shot at the Senate presidency.

But he could sit in one place for only so long. He would bounce to his feet, leading an interviewer to his office-at-home to show off a book proposal he’d written and a token of his parallel life in the alternative energy business, a huge wall photo of the Cardiff, Wales, headquarters of a flexible low-light solar company he founded. Then, walking over to flip a wall switch to raise what looks like an innocent garage door, he reveals a well-appointed backyard bar, its walls painted with images of tequila bottles bearing the names of political luminaries who’ve visited.

Hertzberg’s district office on Van Nuys Boulevard shows a similar obsession with meaningful detail, from its welcoming open design to its San Fernando Valley historical photos and unofficial Valley Hall of Fame, to its staff play area done in bright kindergarten colors. One thing you don’t see is photos of Hertzberg with famous people, a traditional hallmark of politicians’ lairs. The “ego photos” are displayed out of public view, in the little room with the copy machine.

The play area might be necessary for a staff that’s used to receiving 2 a.m. phone calls from the boss, a round-the-clock idea machine undeterred by political setbacks.

“I like to legislate,” Hertzberg said. “I like to work on the big ideas.”

“You have to keep fighting on the things you care about, and not let (politics) dampen your enthusiasm,” said Barbara O’Connor, who observes the capitol as director emeritus of Sacramento State’s Institute for the Study of Politics and Media. “And (Hertzberg) hasn’t let it dampen his enthusiasm.”


Hertzberg could be known for any of a number of distinctions:

He was Assembly speaker in 2002-04. He ran for mayor of L.A. in 2005, softening up incumbent James Hahn before Antonio Villaraigosa swooped in and edged Hertzberg out of the runoff, which Villaraigosa won. He’s the guy who, while an undergraduate at the University of Redlands, wrote a 400-page book called “A Commonsense Approach to English.” (He still has a copy around somewhere.) He was ranked one of the top 10 lawyers in L.A. by the Los Angeles Business Journal.

But in 2018 he was mostly known as the politician who was ordered to stop hugging people so much.

In March, the Senate Rules Committee reprimanded Hertzberg after three female lawmakers and a male sergeant at arms said his frequent hugs made them uncomfortable. Investigators concluded the hugs weren’t intended to be sexual. Still, the episode came to be lumped in with the sexual-harassment scandals that led to the resignations of Assemblymen Raul Bocanegra and Matt Dababneh and state Sen. Tony Mendoza, and sanctions against Assemblywoman Cristina Garcia. So much for Hertzberg succeeding Kevin de Leon as Senate president pro tem.

Hertzberg accepted the reprimand and welcomed the election of Toni Atkins, D-San Diego, with whom he gets along, as Senate president. But he’s clearly bruised by the controversy, arguing that his hugs were always “about warmth, about humanity.”

He still exchanges hugs with people, if they are people who’ve known him for a long time and welcome Hertzberg’s personal touch.

In December, Atkins completed Hertzberg’s speedy rehabilitation by appointing him as Senate majority leader.

If he survived the flap relatively unscathed, it might be because his hugs had long been a kind of personal trademark, and because he’s almost universally well-liked in the Legislature, said Marcia Godwin, a professor of public administration at the University of La Verne.

Hertzberg started in politics in 1973 as a driver for then-state Sen. (and later Lt. Gov. and Rep.) Mervyn Dymally. First elected to the Assembly in 1996, he has been in and out of state office longer than any current capitol colleague except Tom Umberg, D-Garden Grove. He has honed the craft of legislating.

“When he was speaker, he would get people into a room on different sides of a bill at 1 a.m. to come to a solution,” said Stuart Waldman, a former Hertzberg chief of staff who now is president of the San Fernando Valley Industry & Commerce Association.

“Many times you had both sides walking out unhappy. But something got done.”

The top legislative accomplishment of Hertzberg’s first term in the Senate was passage of a bill that ends cash bail in California, allowing judges — not a defendant’s ability to pay — determine when a defendant can be released from custody before trial. The bill, SB10, received broad Democratic support and one Republican’s vote.

“Obviously his position was persuasive enough to sway me,” said the one, Sen. John Moorlach, R-Costa Mesa. “I thought his argument that (the cash-bail system) penalized the poor was an accurate one.”

Persuasion, Moorlach said, is a “passion” for Hertzberg.

“If he doesn’t see his bill passing, he kicks it up a notch,” Moorlach said. “He’ll pull you aside, he’ll talk to you, he’ll put the pressure on. He’s professional about it.”

‘Speeding it up’

Hertzberg saw his appointment as majority leader as confirmation that, four years after returning to Sacramento, he had become “part of the partnership, helping to lead the Senate.” It also was confirmation that he’ll get along better with Atkins than with her senate president predecessor, de Leon. This portends a potential big finish for Hertzberg’s lawmaking career.

Asked about his legislative priorities, he launches into a list that includes efforts to promote tax reform, economic opportunity zones, earthquake retrofitting, utilities’ wildfire liability issues, storm water capture, and simplification of government forms. And polishing the bail-reform law, depending on what data show about how judges handle the new rules.

His fourth-floor district office affords a scenic view of the bail-bonds stores in the Van Nuys civic center.

“They’re all going to be Starbucks soon,” Hertzberg said, envisioning that his legislation will put bail bondsmen out of business.

Hertzberg is 64, divorced since 2005 from Cynthia Ann Telles, a clinical psychologist. One son, David, 28, is an acclaimed opera composer, and the other, Daniel, 27, is in hotel sales.

In five elections for Assembly and Senate, Hertzberg has never received less than 59 percent of the vote, and he topped himself on Nov. 6 by getting 78.1 percent against Republican Rudy Melendez — the highest percentage for any candidate in a contested California Senate race in 2018.

That’s not the kind of showing that would have a politician thinking retirement, which is why Hertzberg-watchers don’t imagine him loosening his embrace of elected office.

“I wonder if Hertzberg doesn’t have the governorship on his mind, or maybe trying again for mayor of Los Angeles,” said Tom Hogen-Esch, a political science professor at Cal State Northridge, which is in Hertzberg’s 18th Senate District. “I have a feeling this (the Legislature) isn’t where he’ll end his career.”

Former staffer Waldman, referring to 2022, when Hertzberg will be termed out of his current job, put it this way: “The sky is the limit. It wouldn’t shock me if he wound up running for statewide office or county supervisor or even mayor again.”

Of the possibility of campaigning to succeed L.A. Mayor Eric Garcetti, whose own term is up in 2022, Hertzberg said: “I don’t want to say ‘no,’ but I highly doubt it.”

He has always said he runs because he thinks he can use the power to tackle big issues.

That means this is no time to think about what’s next, whether it’s political retirement or a run for higher office.

“Just because I’m in my last term doesn’t mean I’m going to be slowing it up,” he said. “I’m going to be speeding it up.”


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MOORLACH UPDATE — Sacramento County School Districts — January 14, 2019

After revealing the per capita unrestricted net position of California’s 944 public school districts to measure the range of where they are financially, we found that Los Angeles Unified (LAUSD) was near the bottom. Sacramento City Unified (SCUSD) was also.

SCUSD has a population of close to 350,000 and covers a significant amount of real estate in the Capital area. It is also having issues (see MOORLACH UPDATE — The Tarnished State — December 17, 2018). But, at least its teacher’s bargaining unit is not as out of touch as LAUSD’s and has not called a strike. But it threatened to strike in 2017. The school district board of trustees gave in and granted wage increases, but now look where that has brought them.

I warned that the new Governor’s first crisis may be the school districts (see MOORLACH UPDATE — Broke Schools — January 7, 2019). The drum beats on this topic continue to grow louder with each passing week. With the LAUSD strike occurring today, the California Globe provides my submission on Sacramento County’s school districts in the piece below.

Sacramento City Unified Financial Crisis Is No Surprise One of the lowest-ranked among 944 school districts

By Senator John Moorlach

Sacramento City Unified School District recently announced it could run out of money by the end of 2019. Its statement warned it “would not have enough cash to cover employee payroll, payments to vendors and others.”

I’m not surprised. It was one of the lowest-ranked among the 944 school districts I analyzed in my October 3, 2018 report, “Financial Soundness Rankings for California’s Public School Districts, Colleges & Universities.” The report found two-thirds of state school districts “bleed red ink.”

It examined each district’s Unrestricted Net Position, a key number showing fiscal soundness. The numbers are found in each district’s latest Comprehensive Annual Financial Report, called a CAFR.

Sacramento City Unified’s UNP ranked sixth worst, at ($540 million) – parentheses around a number indicate a negative. The worst of all was Los Angeles Unified ($10.9 billion), followed by San Diego Unified ($1.5 billion), Fresno Unified ($849 million), San Francisco Unified ($770 million) and Long Beach Unified ($564 million).

The financial problems of these districts have worsened despite leaps in spending. For example, according to Sacramento City Unified’s 2017 CAFR (the same one I used for my report), Total Government Funds revenues were $647 million, up 40 percent from the $461 million on the 2010 CAFR.

Another way to look at CAFR numbers is the per capita UNP, based on the number of residents in a school district, as provided by the California Department of Education.

That also rang an alarm bell for Sacramento City Unified, at ($1,588) per capita, 867th worst among the 944 California public school districts.

From my overall state report, I broke out all 13 pubic school districts in Sacramento County and tallied their per capita UNPs. Note that only one district, Robla Elementary, is in positive territory. Three districts are even in worse shape than Sacramento City Unified:

District UNP Per Capita
1 Robla Elementary $128
2 Arcohe Union Elementary ($208)
3 Galt Joint Union High ($438)
4 Elverta Joint Elementary ($735)
5 Twin Rivers Unified ($1,045)
6 Galt Joint Union Elementary ($1,082)
7 River Delta Joint Unified ($1,217)
8 San Juan Unified ($1,265)
9 Elk Grove Unified ($1,284)
10 Sacramento City Unified ($1,558)
11 Folsom-Cordova Unified ($1,684)
12 Natomas Unified ($1,708)
13 Center Joint Unified ($2,387)

The main culprit in negative CAFRs is unfunded pension liabilities.

New CAFRs soon will be coming out for all districts for the fiscal year that ended last June 30, 2018. The numbers should prove even more challenging as, for the first time, CAFRs will be required to also include retiree medical liabilities on their balance sheets.

The warnings in my reports are intended to give officials, administrators, teachers, parents and students data to prevent financial disasters by searching now for solutions.


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MOORLACH UPDATE — Proposed Budget Observations — January 12, 2019

New Session. New Governor. New Budget. Wow! What a packed first week. Gov. Newsom, when being questioned by reporters during his proposed budget presentation, reminded them that it was only his fourth day on the job.

The Davis Enterprise carries the CalMatters piece covering the emphasis by the Governor to start a habit of prepaying, or paying more, every year toward the unfunded pension liabilities. This is an excellent strategy. One that I strongly encourage. Although this is a good start, if there is any criticism, it’s more should and could be applied to this massive and expensive financing cost debt hanging over the state’s children and grandchildren. It is the first piece below.

The Orange County Breeze provides a number of press releases on the newly proposed budget, including state cash flow data, which confirms my cautionary posture. It includes the CalMatters quote source. It is the second piece below.


On January 14, 1994, the OC Register published the following piece, titled “County Treasurer Will Seek Reelection.” I’m sure the incumbent was hearing rumblings about a potential opponent. So, he decided to rerun. The other option was to have his Assistant Treasurer, Matt Raabe, run for the position. But, it would be easier for an incumbent to win against an unknown opponent. Then Citron could resign and have the Board of Supervisors appoint his assistant to replace him.

With the benefit of hindsight, so much pops out from the announcement, like the dramatically high amount of interest revenue; spinning off some of these earnings for a specific program (a very unusual strategy); and the biggest red flag, earnings at “the highest levels in the . . . nation.” But you can appreciate why nearly 160 non-county public agencies from within the county and around the state were participants in the scheme.

Orange County Treasurer-Tax Collector Robert L. Citron, whose management of government revenues in lean fiscal times has won him praise from officials, said Thursday that he will seek a seventh term in office.

In a written notice announcing his reelection bid, Citron, 68, stated that investments made by his office had generated $344 million for the county last year.

A portion of those investment earnings will be used to fund a $2-million anti-gang strategy called TARGET that will send teams of police, prosecutors and probation officers into the county’s most troubled neighborhoods.

“The investment strategies and programs that have carried Orange County’s annual interest rate on tax dollars to the highest levels in the state and the nation must be continued,” Citron said.

“Because of this sound investment strategy, the people who pay taxes had their tax load lightened by tens of millions of dollars,” he added.

The treasurer’s office manages an investment portfolio valued at $7.5 billion in taxes from 187 public agencies, including cities, school districts, special districts and county government.


Governor seeks extra pension payments

By Judy Lin

Following Jerry Brown’s footsteps, Gov. Gavin Newsom announced Thursday he wants to make extra pension payments even as California’s retirement liabilities for state workers and teachers top $256 billion.

In unveiling his first budget, flush with a surprisingly large surplus from a robust economy, Newsom said he wants to put an extra $3 billion into the California Public Employees’ Retirement System (CalPERS) and an extra $2.9 billion over four years into the California State Teachers’ Retirement System (CalSTRS).

His administration estimates the extra payments would generate a savings of $7.2 billion in CalPERS over the next three decades and $7.4 billion in CalSTRS over the same period.

“That’s about building resiliency,” Newsom said about being prepared for an economic downturn.

In addition, the governor is offering $3 billion to help school districts meet their obligations, which would be used to reduce their CalSTRS payments and free up cash for the classroom.

Specifically, $2.3 billion of that money would be used to pay down school districts’ long-term unfunded liability and the remainder would be used to lower employer contribution rates over the next three years.

At Los Angeles Unified School District, the move lifted hopes of possibly avoiding a looming teacher strike.

Moments after Newsom’s presentation, the district announced it would be sending the L.A. teachers’ union a fresh proposal “to further reduce class size,” and urged state lawmakers to “provide additional funding for Los Angeles Unified.”

“Gov. Newsom is tackling the No. 1 financial dilemma that districts are facing across the state, and he’s doing it in his first budget,” said Derick Lenox with Capitol Advisors Group, which lobbies for school districts. “And by the way, it’s not sexy to prepay pension contributions, it’s just financially smart.”

Conservatives gave Newsom credit for the extra payment but noted the size of the long-term liability. California’s retirement liabilities now add up to $256.5 billion, according to Newsom’s finance department.

“That’s a great start, but hardly adequate to address the growing pension and retiree healthcare costs that state and local governments are now required to acknowledge in their (financial reports),” said state Sen. John Moorlach, a Republican from Costa Mesa.

— CALmatters education reporter Ricardo Cano contributed to this report.

Politicians react to governor’s 2019-20 budget proposal

As Governor Releases First Budget Proposal, CA Controller Reports State Closed 2018 Short of Expectations

On the day Governor Gavin Newsom proposed his first budget, State Controller Betty T. Yee reported California’s revenues in December fell short of assumptions in the 2018-19 fiscal year budget by $4.82 billion. For the fiscal year, revenues of $55.63 billion are 4.4 percent ($2.54 billion) less than projected in the budget, which was enacted at the end of June.

“With our economy continuing to hover on the brink of a downturn, I applaud Governor Newsom’s budget planning with an eye towards building a strong foundation of long-term cost savings and fiscal discipline. The Governor’s proposals for debt and pension liability reduction; bold programming investments for education, health care, child care, and housing; and rainy day savings will pay dividends,” said Controller Yee, the state’s chief fiscal officer. “With thoughtful allocation of finite resources, we can shape solutions to one of our most vexing challenges—the widening inequality that plagues our state.”

Personal income tax (PIT), sales tax, and corporation tax –– the state’s “big three” revenue sources –– all were lower than projected in the FY 2018-19 budget. The shortfall in December could be partly due to lags in taxpayer filings at the end of the tax year as a result of federal tax deduction changes. Consequently, January receipts are expected to catch up to the FY 2018-19 budget forecast.

For December, PIT receipts of $6.76 billion were $3.45 billion less than expected in the FY 2018-19 Budget Act. PIT receipts in December 2017 were $11.50 billion.

Sales tax receipts of $1.16 billion for December were $1.42 billion less than anticipated in the FY 2018-19 budget. Last month’s corporation taxes of $2.09 billion were $179.5 million lower than FY 2018-19 Budget Act estimates.

The General Fund ended December with an internal loan borrowing balance of $11.80 billion, which was $4.85 billion less than anticipated in the FY 2018-19 budget.

For more details and comparisons, read the monthly cash report. This month’s edition of the Controller’s California Fiscal Focus newsletter examines the effects of U.S.-China tariffs and federal tax changes on the State of California.

As the chief fiscal officer of California, Controller Yee is responsible for accountability and disbursement of the state’s financial resources. The Controller also safeguards many types of property until claimed by the rightful owners, and has independent auditing authority over government agencies that spend state funds. She is a member of numerous financing authorities, and fiscal and financial oversight entities including the Franchise Tax Board. She also serves on the boards for the nation’s two largest public pension funds. Elected in 2014 and reelected in 2018, Controller Yee is only the tenth woman elected to a statewide office in California’s history. Follow the Controller on Twitter at @CAController and on Facebook at California State Controller’s Office.

Senator John Moorlach Commends Gov. Newsom’s Budget Proposal for Rainy Day Fund, Cautions about Economic Assumptions

Sen. John M.W. Moorlach released the following statement in response to Gov. Gavin Newsom’s state budget introduction:

As the only trained CPA in the California Legislature, I am looking forward to working with Gov. Gavin Newsom on his state budget proposal for fiscal year 2019-20. I hope it represents a fresh start for all 40 million Californians and their aspirations. As I do a quick top-line review, here are eight commendations and concerns:

Commendably, the governor makes note that the economy is slowing, so spending must be restrained. I would add that the yield curve is inverted, which usually means an economic slowdown is imminent. Consequently, a total budget growth of 3.2 percent may be an optimistic assumption.

He spends $7.7 billion, “across multiple departments and programs,” on programs to address the state’s homeless and mental illness crises.

He includes $213.6 million for wildfire mitigation and hardening our electrical infrastructure. Almost all that is from SB 901, passed last year, which required $200 million a year for five years from cap-and-trade funds for such programs. I think the amount should be higher, but that’s a start. Given how greenhouse gases from three days of wildfires equal the entire amount of greenhouse gasesfrom all the automobilesin the state for a year, the cost-benefit advantage here is substantial.

It’s excellent the governor is continuing to fill the Rainy Day Fund at $15 billion, slightly higher than the 10 percent of the general-fund budget as required by Proposition 2 from 2014. The budget proposal anticipates that will rise to $19.4 billion in the 2022-23 budget. An economic downturn may be just around the corner. Gov. Gray Davis found out quickly how hard it is to keep money in the bank as he blew through the $13 billion surplus Gov. Wilson left him.

The governor wants to put a one-time payment of $3 billion into CalPERS and $2.9 billion into CalSTRS over the next four years to reduce state pension and retiree medical liabilities. That’s a great start, but hardly adequate to address the growing pension and retiree healthcare costs that state and local governments are now required to acknowledge in their Comprehensive Annual Financial Reports.

On the negative side, the governor missed an opportunity to put money into the Public School System Stabilization Account, also required by Proposition 2. According to the Legislative Analyst’s Office, there is currently no money in the account. My own analysis of school district balance sheets tallies more than two-thirds of school districts running red ink. Many districts, the worst being the Los Angeles Unified School District at $19.6 billion, run deep into the red.

The Governor is acting more like a Chief Executive Officer than his predecessor. Instead of giving the Department of Motor Vehicles whatever it takes to shorten the waiting lines, Gov. Newsom is sending in a strike team and implementing better management practices. This is very encouraging.

Finally, I hope my slowing-economy concerns are addressed in the May Revision of the budget proposal. By then we will better see if the recent downturn in the stock market, especially the sharp decline of Silicon Valley companies, was an anomaly or part of a trend.

Senators Patricia Bates and Jim Nielsen React to Governor’s 2019-20 Budget Proposal

Today, Senate Republican Leader Patricia Bates (R-Laguna Niguel) and the Vice Chair of the Senate Budget & Fiscal Review Committee, Senator Jim Nielsen (R-Tehama) provided the following statements on Governor Newsom’s 2019-20 budget proposal:

Senate Republican Leader Patricia Bates:
“In Governor Newsom’s first budget there is a lot to applaud, including expanded efforts to pay off debt, build the state’s reserves, and increase the Earned Income Tax Credit. The budget also includes fulfilling the will of the voters in expending voter-approved bond and tax funds to build and modernize schools and increase rate reimbursements for medical providers that will result in greater access to health care for California citizens.

“The Governor’s budget would spend a record-high $209 billion, an increase of $8 billion over last year. I remain concerned with massive unfunded liabilities and also the new proposals to expand services and obligations that the state will not be able to afford when the economy slows down. Democratic state legislators have already proposed $40 billion in new spending, much of which would be above and beyond what the Governor has proposed. Hopefully the final budget will reflect more caution.”

Senator Jim Nielsen:
“The Governor got off to a good start. It is encouraging that Governor Gavin Newsom proposed funding to help survivors and communities rebuild. Governor Newsom pledged three years of property tax reimbursement to Butte County. This is important for the citizens and the stability of our communities.

“Debt retirement and paying into the pension liabilities will be very helpful for future generations.

“We have to be cautious in expanding the state’s spending so we don’t repeat mistakes of the past, when a big surplus was squandered and resulted in a $45 billion deficit.

“Californians cannot afford to repeat this mistake. It is encouraging that Governor Newsom is sensitive to that.”

Statement from California Treasurer Fiona Ma on Gov. Gavin Newsom’s 2019-2020 Budget Proposal

For more news about the State Treasurer’s Office, please follow Treasurer Ma on Twitter at @CalTreasurer, and on Facebook at California State Treasurer’s Office.

“Our collective efforts to end California’s housing crisis just got a very big boost from Governor Newsom in his proposed state budget today,” said Treasurer Fiona Ma. “Building more affordable housing is one of my top priorities. But let’s not fool ourselves. More is needed. We need creative and innovative out-of-the-box thinking. And, of course, we need to move at warp speed.”

Governor Gavin Newsom, has called for 3.5 million new housing units by 2025, which amounts to 500,000 new homes each year. That’s 6.25 times more than California currently produces – an average of 80,000 homes a year.

Under Treasurer Ma, the California Debt Limit Allocation Committee (CDLAC) manages the state’s tax-exempt bond allocations for affordable housing projects and the Single-Family First-Time Homebuyer Program. In 2017, CDLAC’s allocation for tax-exempt bonds helped to finance more than 12,000 units of housing, including more than 10,000 affordable units, and assisted over 2,000 new homebuyers. Another program offered by the State Treasurer’s Office is the California Tax Credit Allocation Committee (CTCAC), which administers the federal and state Low-Income Housing Tax Credit Programs. In 2017, between CTCAC’s three Federal Credit Awards programs more than 13,000 low-income housing units were financed.

Statement from OCYD on the Governor’s Proposed Budget

In response to Governor Gavin Newsom’s 2019 budget, OCYD released the following statement:

“This morning Governor Newsom released the first budget of his administration. OCYD applauds the bold progressive values reflected in this budget—from major investments in preschool and kindergarten classrooms, to an expansion of paid family leave and the creation of a Working Families Tax Credit, to new resources to empower community-based and non-profit organizations providing services to undocumented immigrants at the border, and finally to a record-setting 7.7 billion dollar investment in California’s housing and homelessness crisis–Governor Newsom has shown us that he will be delivering in his campaign promises.

We especially applaud Governor Newsom for his progressive budget policies while also maintaining a strong focus on fiscal responsibility. Governor Newsom has shown our State and democratic leadership across the country that is possible to make progressive investments while also allocating 13.8 billion in building budget resiliency through pension liability payments and additional contributions to the State’s Rainy Day Fund. We look forward to working for the Orange County Legislative Delegation is helping shape the proposed budget into a reality over the next six months.”

OCYD is one of the largest Young Democratic organizations in the state with an active membership of over 300. Last night, OCYD elected the largest and most diverse board in the organization’s history.

The full budget is available here:


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MOORLACH UPDATE — First Budget Presentation — January 11, 2019

Gov. Gavin Newsom’s first budget presentation was a sight to behold. It provided him with the bully pulpit to outline his areas of concern and where his priorities will be. It was very detailed and, for a few reporters, very lengthy. I enjoyed it.

The overall view is that our new Governor is concerned about the economy and unfunded liabilities, which I share, but also willing to project that he will have an additional $21 billion to spend, which seems inconsistent with what the current fiscal trends are telling me. This executive summary seems to be a common theme in the two pieces below.

Remember, the January 10 budget proposal is the only bill the state constitution mandates the legislature to consider. It’s a first shot announcing the governor’s priorities and will likely go through significant changes. Most reaction comes from a very high-level view of the concepts and it’s going to be the committee process where everything is fleshed out.

The Governor decided to anticipate as many objections as he could and front loaded the negotiations by including pieces from previous legislative sessions, something that the previous Governor was want to do. I find that to be a more genuine and honest approach, but we’ll have to see how it holds. The real test will be in the May Revision. I will actively review the details and provide regular accounting for what our state’s priorities should be. Until then, I think that discreet commentary is in order.

The San Francisco Chronicle provides its perspectives in the first piece, which shares my cautionary view of what lies ahead. Remember, California does not control international or national economic cycles. So, if the Chinese decide to purchase fewer Apple iPhones, we feel it here in the Golden State.

Politico takes a very deep dive into the entire budget and is a great read if you, too, like detail and getting into the weeds. It is the second piece below.

The Governor is echoing many of my policy priorities and legislative themes from the last few years which have major budget implications, like maintaining the Rainy Day Fund, addressing unfunded pension and retiree medical liabilities, appreciating the fiscal distress impacting California’s school districts, and even establishing and funding accounts for students in preparation for college (which sounds like my SB 1344 proposal from last year —

It was great to hear him addressing homelessness and mental illness, something I offered to work with him on

(see MOORLACH UPDATE — Working With the Governor-Elect — November 8, 2018). He even mentioned CEQA reforms to expedite the construction of homeless shelters. Thank you, Governor.

His speech made me reminisce about many of my legislative attempts and how they fit into his budget narrative. Here’s a few that I will suggest he review:

* Senate Bill 1248 (2016) – California Environmental Quality Act, Litigation Disclosure

* Senate Bill 32 (2017) – California Public Employees’ Pension Reform Act of 2018 (PEPRA II)

* Senate Bill 454 (2017) – Retiree Medical Costs

* Senate Bill 590 (2017) – School Reserve Cap Repeal

* Senate Bill 671 (2017) – Advanced Pension Payments

* Senate Bill 681 (2017) – Local Pension Control

* Senate Bill 656 (2018) – Judicial Retirement System

* Senate Bill 1031 (2018) – Cost of Living Adjustments Freeze

* Senate Bill 1032 (2018) – Eliminate the Terminated Agency Pool

* Senate Bill 1033 (2018) – Pension Reciprocity

* Senate Bill 1344 & Senate Constitutional Amendment 16 (2018) – Education Savings Account Act of 2020

* Senate Bill 1433 (2018) – Restrict the Deferred Retirement Option Program

As I once again sit on the Senate Budget and Fiscal Review Committee, this year serving on Sub 5, Public Safety, versus Sub 1, Education, I’ll enjoy the process of debating the components of the budget over the next five months. The Governor’s May Budget Revision may bring many of his proposals down to reality as current economic trends become clearer. Other than that, it was an amazing first week of the new Session and it promises to be a fun adventure.

Gov. Gavin Newsom’s budget: More money for education, Navigation Centers

Joe Garofoli and John Wildermuth

Gov. Gavin Newsom proposed a $209 billion state budget Thursday, a 4 percent increase over the previous year that includes more spending for education and Navigation Center homeless shelters and an increase in California’s rainy-day reserve.

Newsom proposed a record $80.7 billion for K-12 education and money for a second year of free community college for full-time students. His fiscal 2019-20 budget also includes money for an expansion of preschool education and $750 million to fund more all-day kindergarten programs.

Newsom would pay for some of his new initiatives with an anticipated $21.6 billion surplus, $6.5 billion more than what the nonpartisan Legislative Analyst’s Office projected in November. The governor said the more optimistic numbers were based on updated statistics.

On housing, Newsom proposed $500 million in state aid to cities to open Navigation Centers like those pioneered by San Francisco, where homeless people have access to programs such as drug and mental health counseling and job searches. He proposed waiving environmental requirements for building such shelters, much as cities do for stadium projects.

He also said he would withhold transportation funding from communities that do not achieve their local housing-creation goals.

“Everyone has to step up,” Newsom said. “If they don’t, don’t ask us for more money.”

Newsom also called on the business community to help solve the state’s housing crunch. He said he has been having a “quiet conversation” with Silicon Valley leaders to “step up and match our contribution.”

Even as he proposed a 4 percent overall budget increase, Newsom invoked former Gov. Jerry Brown’s warning to sock away money for an expected economic downturn. Newsom’s budget calls for putting $1.8 billion into the state’s rainy-day fund, which would increase it to a total of $15.3 billion. Newsom said he plans to increase the fund to $19.4 billion by fiscal 2022-23.

Newsom’s budget also includes $4.8 billion to pay down some of the state’s unfunded retirement liabilities and $4 billion to pay off all the state’s budget debts and deferrals. California still has $256 billion in unfunded retirement benefits for state employees.

“We are preparing for uncertain times,” Newsom said. His budget assumes a 3.2 percent growth in the state’s economy, compared with 5 percent projections in past years.

State Sen. John Moorlach, R-Costa Mesa (Orange County), called Newsom’s growth projections “a little bit optimistic, based on current trends.” He’d prefer to bank on zero growth.

“When the market turns, it doesn’t give you a couple years’ notice, it turns on a dime,” Moorlach said. “You could lose your rainy-day fund within a matter of months.”

Budget hawks like Moorlach and GOP Assemblyman Jay Obernolte of Big Bear Lake (San Bernardino County), vice chair of the Budget Committee, applauded Newsom’s suggestion to use the state’s surplus to pay down debts. But Obernolte cautioned that “we must remember that creating new programs that would only have to be cut in a recession would be foolish.”

Newsom said “90 percent” of his proposals are policy ideas that the Legislature already supports. Assembly Budget Committee Chair Phil Ting, D-San Francisco, said that “I don’t know if that’s completely true, but on the big issues we absolutely agree. … We all want universal health care, we want universal preschool, we want full-day kindergarten.”

One big-ticket item was conspicuously absent. Although Newsom said this week that he wanted to expand state-paid family leave to six months for parents of newborn children, his budget did not include funding for it. He said he would create a task force to study the idea.

The budget Newsom unveiled Thursday is just the first step in a months-long process, a starting point for negotiations with the Legislature. The governor will provide a revised budget proposal in May, which will include spending and revenue from the next few months. The Legislature then must approve the budget in June.

In what may be his most popular proposal, Newsom said the Department of Motor Vehicles should start accepting credit card payments. Newsom joked that he couldn’t believe that a governor would be making news with that statement in 2019.

“That,” Newsom said, “is in the you-can’t-make-this-up department.”

Newsom earned a reputation for wonkishness long before he was sworn in as governor — as San Francisco mayor, he famously delivered a seven-hour State of the City presentation on YouTube — and that enthusiasm for eye-glazing detail was fully evident Thursday.

Ten minutes into his 105-minute presentation and question-and-answer session, Newsom enthusiastically touted the money he was proposing for a “longitudinal data system” to track student progress.

“Wait till next year,” he said. “You’ll have to listen for four hours. I love this stuff.”

Joe Garofoli and John Wildermuth are San Francisco Chronicle staff writers. Email: jgarofoli, jwildermuth Twitter: @joegarofoli @jfwildermuth

Newsom seeks changes across government in first budget


Enjoying the tailwinds of a massive surplus and large Democratic supermajorities in both houses, Gov. Gavin Newsom is using his first budget proposal to put his policy stamp on nearly every sector of California government.

The Democratic governor described Thursday — in detail, for nearly two hours — how he would use his $209 billion spending plan to shape California’s future, focusing heavily on early childhood, housing and health care.

While Newsom used some of his estimated $21.4 billion surplus to lay the groundwork for future program expansion, he also directed much of it to pay off debts and reverse borrowing gimmicks from as far back as the Gov. Arnold Schwarzenegger era during the worst of the recession, taking a page from famously frugal Gov. Jerry Brown’s playbook.

“The message we are advancing here is discipline, building a strong foundation on which everything else can be built,” he said at the Secretary of State’s auditorium, a bigger venue needed to accommodate the greater number of reporters and state officials on hand to watch Newsom’s first budget presentation.

The notes of discipline in Newsom’s proposal won him plaudits from even some Republicans. But a key question, perhaps, is whether Newsom’s nascent administration will have the bandwidth to execute on the vast array of proposals he’s put on the table — a list that seemed to grow as his Thursday budget briefing went on and the new governor offered to provide jobless benefits to furloughed federal workers.

“It’s always challenging when you have a two-year campaign, you need to be talking about a lot of things. … You’re talking to a lot of constituency groups, you’re trying to be very aspirational,’’ said Assemblyman Phil Ting (D-San Francisco), who chairs the Assembly Budget Committee, one of the panels that will now prepare to dig into the fiscal blueprint. He added that “for some of the heavier lifts, it’s really up to see how much he and his team are willing to push it.”

Newsom, a father of four, drafted his spending plan with a clear focus on more money for programs focused on young children. He devoted the opening policy section of his budget summary to early childhood, likely the first time a governor has done so.

He proposed nearly $2 billion in spending on kindergarten and child care facilities, as well as home visits and parental aid. But he also called for a $500 earned income tax credit bonus for families with children younger than 6, paid family leave up to six months and additional Cal Grant aid for parents attending college.

Newsom proposed a fund for safe drinking water — a problem plaguing low-income, rural communities in California. He called for major incentives designed to spur housing construction in California. He proposed several measures that attempt to expand health coverage to the remaining 7 percent of Californians who are uninsured, including subsidies for upper-middle-class residents and Medi-Cal for undocumented immigrants between ages 19 and 25.

Newsom starts with perhaps the biggest fiscal advantage enjoyed by any California governor in recent history — a rainy-day reserve projected to grow to $15.3 billion and a surplus he now estimates at $21.4 billion — more than $6 billion higher than the Legislative Analyst’s Office forecast in November. The Department of Finance said that’s largely due to more revenues and fewer expenses than predicted in the current fiscal year, as well as unforeseen Medi-Cal savings. The LAO will now review the Newsom budget.

Newsom touted his unprecedented $13.6 billion to pay down pension liabilities, debt and accounting gimmicks from years ago, which his plan calls “building budgetary resiliency.” The governor has proposed $3 billion to pay down CalPERS pension liabilities for public employees and $3 billion to relieve school districts of CalSTRS payments.

The Department of Finance says that his budget only adds $2.9 billion in permanent budget growth. That’s just under the $3 billion level that the Analyst’s Office suggested would be prudent to get through a moderate recession unscathed.

“None of us are naïve,’’ and California may soon be “overdue for a correction” in the booming economy, Newsom warned.

While his plan doesn’t bake in massive program expansions now, it would require billions more in ongoing spending down the road to carry out his grand vision. That list was topped by proposals to establish full-day kindergarten across the state and provide public preschool for all low-income 4-year-olds.

He said he laid out a strategy to accomplish these goals in three or more years, “but we’re going to be sober and honest about how much we can do.”

Likewise, Newsom opted to use some of the surplus to modernize the state’s analog 911 emergency call system and create pilot projects to establish savings accounts for young children. Both would eventually require hundreds of millions of dollars — and possibly new taxes in the case of the 911 overhaul.

California Budget and Policy Center Executive Director Chris Hoene said Newsom made a savvy move by focusing on finite commitments that could clear the way for sustained changes as the new governor’s tenure unfolds.

“It’s not as if all of his promises are going to be delivered in year one,” Hoene said, noting that offering more early childhood services, for example, means building the “capacity to serve more children.”

“Before you have universal kindergarten for 4-year-olds, you need to invest in the facilities and the staff and the infrastructure,” Hoene said. “There’s a trend of committing one time investments while the budget is in good shape, while doing some stage-setting for future investments.”

Newsom’s first budget generally received favorable reviews from lawmakers, even from some Republicans.

“He’s got his eyes wide open and I appreciate that,” said state Sen. John Moorlach (R-Costa Mesa). “So, I want to encourage him with his big plans, but he’s got to be able to hit the reverse gear. It would be a disservice to build an infrastructure for Pre-K and then have those buildings empty because we had to eliminate that program.”

In the weeks after Newsom’s election, some veteran budget experts speculated that he might use his January budget as a placeholder to buy time to develop the initiatives he promoted on the campaign trail. But he instead used the rollout to map out his agenda.

Unlike Brown, who generally waited for lawmakers to propose spending plans before reacting to them, the former San Francisco mayor and lieutenant governor cast himself as an unusually proactive chief executive.

The stark differences weren’t lost on some legislators, who — while lauding Newsom’s enthusiasm and energy — also said there may be a reality check ahead now that he’s no longer a candidate.

Assemblyman Ting noted that “one of Gov. Brown’s strengths was having a really narrow list of things to work on, and get done. And because of that, he was able to get them done.”

At times, Newsom sprinkled his presentation with remarks that seemed to indicate he was trying to outdo Brown, who won his biggest praise for putting the state budget on a stable path after deep recessionary cuts that started a decade ago.

Newsom said his budget added less to permanent spending growth than any of Brown’s spending plans did. He said his budget is “structurally balanced over the next four years. And forgive me, this is not an indictment, and please don’t consider it as such, but that has not always been the case with presentations by governors — even recently.”

Later, he observed that Brown didn’t pursue tax reform, but that he would because the state’s revenues are too volatile. Newsom suggested that California isn’t doing enough to capture revenues from the modern service economy.

The governor’s least dramatic budget section, perhaps, was the largest: K-12 schools. While previous governors regularly enjoyed making a splash with big classroom initiatives, Newsom focused more on under-the-hood work that will probably win more plaudits from district accountants than from parents.

Start with the $3 billion payment to CalSTRS, which will help more districts balance their increasingly shaky budgets, though it won’t necessarily reduce class sizes or result in new arts and science programs. District leaders have been clamoring for help paying their pension obligations, said veteran schools lobbyist Kevin Gordon.

Another popular piece among the green eyeshade crowd: reversing controversial formula changes signed by Brown that limited growth in the education budget, Gordon said. And Newsom’s $576 million in additional special education funding will be appreciated by district leaders who have seen costs balloon for students with disabilities.

“Gavin went after the hottest button issues the education community has been screaming about the last five years and pushed every one of them in a positive direction,” Gordon said.

Jeremy B. White and Alexander Nieves contributed to this report.


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MOORLACH UPDATE — Dealing With Tensions — January 10, 2019

Gov. Newsom shot a volley at the White House on Monday. President Trump responded on Wednesday. The clip for KCRA 3 has me requesting the rhetoric be toned down. Their written piece, the first below, has me stating the obvious, if you fire off a cannon ball, expect one back. I expect better of both of these leaders since they started building a relationship when they met in Paradise and Santa Monica to tour the fire damage together. When will everyone learn to stay calm and quiet?

Back in Southern California, the threatened LAUSD strike was postponed until Monday. But, it still looms like a massive cloud over some 4 million-plus residents and may find itself on the Capitol front porch soon. Such is the result of spending and promising more than revenues permit. The LA School Report is back with another in depth review of the situation in the second piece below.

5 takeaways from Trump’s Twitter war with California

War of words escalates between Sacramento and Washington

Mike Luehry

Less than 24 hours after Gov. Gavin Newsom praised President Donald Trump for not politicizing the disaster declaration process, the war of words between Sacramento and Washington escalated Wednesday.

Trump threatened on Twitter to withhold Federal Emergency Management Agency money to help California cope with wildfires if the state doesn’t improve its forest management practices.

That tweet led Newsom to respond.

Here are five things to know about Trump’s Twitter war with California:

1) What did Trump say?

Trump threatened to shut down federal funding for wildfire emergencies in California.

The president took to Twitter, his favorite social media platform, to announce:

Donald J. Trump


Billions of dollars are sent to the State of California for Forest fires that, with proper Forest Management, would never happen. Unless they get their act together, which is unlikely, I have ordered FEMA to send no more money. It is a disgraceful situation in lives & money!

2) How did Newsom respond?

Newsom responded on Twitter, saying in part, “Disasters and recovery are no time for politics. I’m already taking action to modernize and manage our forests and emergency responses.”

Gavin Newsom


· 12h

Mr. President — Just yesterday, @OregonGovBrown, @GovInslee, and I sent a letter asking the federal government to work with us in taking on these unprecedented wildfires. We have been put in office by the voters to get things done, not to play games with lives.

Gavin Newsom


Disasters and recovery are no time for politics. I’m already taking action to modernize and manage our forests and emergency responses.

The people of CA — folks in Paradise — should not be victims to partisan bickering.

3) How do Republican lawmakers feel about Trump’s tweets?

State Sen. John Moorlach, R-Costa Mesa, said, “If you want some excitement, just say something negative about Donald Trump, and he will react. That’s just how he’s built.”

Some Republicans used an even harsher tone, blasting Trump for his Twitter war.

State Sen. Jim Nielsen and Assembly member Jim Gallagher sent out a joint statement declaring:

“This Twitter war is not helpful. It will not solve the problem… The President’s threat to withhold FEMA funds from California is wholly unacceptable.”

4) Can Trump shut down the flow of disaster dollars?

UC Davis School of Law Dean Kevin Johnson said the president has no authority to cut off emergency funds.

“It doesn’t seem as if there’s any statutory authority that would allow the president to withhold emergency funds for people based on a state’s set of policies,” he added.

5) What prompted the fight?

California is the epicenter of the resistance to Trump. The state has already sued the federal government more than three dozen times.

Trump may be reacting to Newsom’s comments during his inauguration on Monday, when he said California would provide an alternative to the corruption and incompetence in the White House.

Then on Tuesday, Newsom took a different tone. At a Cal Fire station in Colfax, Newsom declared said, “Look, he’s never played politics with his disaster declarations. And he deserves credit for that, and we are grateful for that.”

Experts: Crippling long-term debt isn’t leaving L.A. schools much wiggle room to avert a teacher strike — and may doom the district to takeover

Taylor Swaak

The looming teacher strike in Los Angeles, no matter how it’s sliced, comes down to money — but not the salary raises and cost of new hires that have kept the district and its teachers union apart during nearly two years of contract negotiations.

The real money problem, experts say, lies with the district’s skyrocketing long-term debt.

Experts warn that for the district to stay out of bankruptcy, it must slash its billions in long-term liabilities, much of it tied to massive retiree health benefit costs.

Their prescriptions ranged from making employees and retirees pay premiums to offering early retirement incentives. Most agreed that a local solution is needed to right the shipas California faces — or could already be in — a recession, meaning state taxpayers maybe unable to bail out the district.

But United Teachers Los Angeles has rejected the district’s proposal to shave off costs by adding two years to how long it takes new employees to become eligible for free lifetime health benefits — something other L.A. Unified unions have already accepted. Union officials dispute the district’s claim that it is cash-strapped, and says it is “hoarding” nearly $2 billion in reserves.

L.A. Unified’s full contract offer includes a 3 percent teacher salary raise retroactive to last year and 3 percent for this year. The district this week also offered $105 million next school year toward UTLA’s demands for lower class sizes and more nurses, counselors and librarians, and officials met Wednesday with California state legislators to “advocate for a larger investment in public education.”

UTLA, which represents more than 30,000 educators and other district employees, has offered concessions too, but union officials said Wednesday that L.A. Unified’s contract offer is still “a drop in the bucket when it comes to our students’ needs.” President Alex Caputo-Pearl said after Wednesday’s bargaining session “we did not see seriousness” from the district. Talks are set again for Friday.

The union says the strike will begin Monday if last-ditch talks fail. It would be the first L.A. teacher strike in 30 years and would affect more than 480,000 K-12 students across more than 1,000 schools.

“If you’re the union, your job is to argue for more benefits for your members,” said Andrew Crutchfield, director of the political philanthropy network Govern For California. But “I think there’s some legitimate questions [as] to what degree the union is representing the interests of current workers.”

A health care plan L.A. Unified ‘can’t afford to pay off’

L.A. Unified’s proverbial “fiscal cliff” has been years in the making and is the fault of the district and political leadership, Crutchfield said. While other public school systems across California are also facing insolvency, L.A. Unified dug itself a deeper hole beginning in the late 1960s, when it started granting eligible employees, retirees and their dependents free lifetime health benefits — including full medical, dental and visionwithout requiring them to contribute to the cost. Retiree health benefits alone are costing the district a projected $314 million in 2019.

History of changes to employee benefits. Source: L.A. Unified

The district, stated simply, has a health care plan it can’t afford to pay off, said Chad Aldeman, a senior associate partner at Bellwether Education Partners. “LAUSD has valued their retiree health promises at $15.2 billion, but [has] only saved $244 million,” Aldeman said.

Money that could be spent in the classrooms isthereforebeing siphoned off. The $314 million cost of retiree health benefits is equivalent to about $12,500 in district spending annually per teacher, Aldeman said. “That’s money that’s not going to teachers, either through salary increases or hiring new teachers.”

L.A. Unified’s health care benefits package — which school board member Nick Melvoin has calledone ofthe most generous in the country — also eats up about $2,300 of the $16,000 the state paid L.A. Unified in 2018-19 for every student it serves.

By 2031-32, the district estimates that half of L.A. Unified’s budget, which was $7.5 billion this year, will be spent on health care and pensions. Part of that is out of L.A. Unified’s control: All California school districts are facing higher employer pension contribution rates — rising from 8.25 percent in 2013 to 19.10 percent in 2020.

Health care benefits for retired employees are determined by a local Health Benefits Committee. But of its nine members, only one is a district representative; the remaining eight represent each of LAUSD’s various employee unions.

This setup, which “essentially means the district can’t control its health care benefits,” is fairly unique to L.A Unified, Crutchfield said. “[It’s] kind of madness.”

Health care benefits are negotiated separately at L.A. Unified from the salary and workplace conditions now at issue in the pending strike. A three-year health benefits contract was approved last spring, so the next opportunity to negotiate them won’t be until 2021, when the district is expected to already be running a deficit. The unions did agree in last spring’s benefits contract to use a reserve fund to cover increases in health care costs, which are projected to rise 6 percent this year.

Over time, these long-term obligations have contributedto what is now a $19.6 billion unrestricted net deficit — “obligations that a district must pay out in future years using future district revenue,” which would take away from “things such as teacher salaries and supplies,” Aaron Garth Smith, an education policy analyst with the right-leaning Reason Foundation, explained.

To put that number in context, it would take $4,140 from every woman, man and child in L.A. Unified to erase the deficit, state Sen. John Moorlach wrote in a December op-ed for the Los Angeles Daily News.

Considering its long-term debts, “LAUSD doesn’t have two nickels to rub together,” Moorlach told LA School Report. His research ranked the district’s per-person contribution cost as one of the highest among California’s 944 public school districts.

That reality is especially “crazy,” Crutchfield noted, when considering that the district received increased funding from the state over the past four years.

The state’s school funding mechanism — the Local Control Funding Formula — rolled out in the 2013-14 school year, generating over $1 billion a year in district revenue, a Reason Foundation study reported. That annual boost in funding is now winding down, however.

“The alarms should be sounding,” Crutchfield said.

Reason Foundation

Aldeman said the district’s attempt to shift the lifetime benefits eligibility back two years is a small step in the right direction, adding that another solution — though it would require agreement by the unions — could be to have employees, retirees and dependents start paying premiums. He added that having retirees “with moderate incomes” get health care coverage through Obamacare or Medi-Cal, California’s version of Medicaid, should be on the table as well.

“The district should not be a health care provider when there are either statewide or national solutions that could take a lot of the [financial] risks off the table for the district,” he said.

Righting L.A. Unified’s financial ship

Most experts interviewed agree that the responsibility largely lies with the district to fix the financial picture, though.

To that end, L.A. Unified in November announced a 15 percent reduction to its central office this year and next, saving an estimated $86 million. The school board and state voters have also green-lighted a 2020 ballot measure to bolster statewide education funding — but even if voters pass it, it would roll out just as the district projects it will become insolvent. Board members on Tuesday passed a resolution as well directing the superintendent to develop a three-year plan to increase district revenues, which could include a parcel tax, school bonds and property tax reform.

Moorlach also recommended offering early retirement incentives — though when a San Diego area school district board voted in December to do that, it prompted the San Diego County Office of Education to take away its decision-making control.

“You see who you can encourage to leave, maybe a year or two or three before when they wanted to,” he said. “There’s a cost to that, but maybe you can fill in those vacancies with newer, younger teachers [who are paid less].”

UTLA teachers are paid an average base salary of $70,141, with an additional average $14,562 in health and welfare benefits, a district spokeswoman told LA School Report. The state average base salary was $77,179 in 2016-17.

Center for Education Reform CEO Jeanne Allen is one expert who thinks state involvement will be inevitable, however.

“[L.A. Unified] could be radical and innovative: they could break up schools, they could try to create new schools, they could close schools; but fundamentally, if they don’t change the way they hire, retain, reward or pay educators, there’s not going to be a lot of change,” she said. “The district could do that, but they’re not going to. … There’s too many moving pieces. Too many vested interests.”

Those vested interests are why the district and union can’t even agree on where the district stands financially.

L.A. Unified says it’s spending about $500 million more a year than it’s taking in, and the county estimates the district’s reserves will drop from $778 million this year to $76.5 million in 2020-21. County and state officials have warned L.A. Unified that they might have to step in and take over if reserves dip too low.

Reason Foundation

Accepting all of UTLA’s demands, which include a full-time nurse in every school and more special education teachers,would add$813 million each year to the deficit and wipe out L.A. Unified’s reserves this school year, the district has said.

“If we had said yes” to all the union’s demands, “we would be bankrupt right now. We’d be under state receivership,” L.A. Unified Superintendent Austin Beutner told Speak Up in August.

UTLA, however, has pointed out that L.A. Unified has been wrong in the past about how soon it would run out of money. The district’s 2016 budget, for example, projected it wouldrun out of cash by this year. The union also believes the district is “intentionally starving our schools,” hoarding nearly $2 billion in reserves “so that cuts can be justified.” L.A. Unified had about $1.86 billion in reserves during the 2017-18 year, but it maintains the bulk of that money has been designated for teacher salary raises, funding for at-risk students, debt payments and other expenses.

Jaime Regalado, professor emeritus of political science at California State University, Los Angeles, said he understands UTLA’s skepticism with district leadership’s data and propositions.

“I don’t think any school district [administration] over the past score of years has ever been entirely truthful,” he said.

He added that while he recognizes the need to have a reserve, “if I’m a teacher and in with the kids and seeing that my class size has expanded, I’m not getting much help with teacher aides, I’m still paying out of my own pocket for certain things … then I really understand that as well.” Class sizes can climb into the 40s.

Aldeman believes district politics play a role in the current divide. “There’s a lot of education that needs to go on in terms of educating UTLA members about what the actual situation of the district is and what are the drivers of that, and how to get out of that [fiscal] hole,” he said.

And one particular point, Crutchfield said, needs to hit home.

“Tackling the long-term liability is what needs to be done,” he said. “Other measures, while they may have merit and may save meaningful amounts of money, are somewhat like moving the deck chairs on the Titanic.”

*This article has been updated with Wednesday’s negotiations ending with no deal.


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MOORLACH CAMPAIGN UPDATE — Campaign Redux — January 9, 2019

The 2020 re-election effort for my final four-year term as a State Senator is shaping up, as the OC Register provides the announcement of my first potential opponent in the piece below.

With the success the Democrats had in Orange County this past November and the possibility of a repeat, it makes sense for them to seize the opportunity. That makes me a “target.” I’m happy to serve. It will be up to the voters if they want someone with a track record and experience or if they want to try a different approach.

I appreciate the process that Mr. Min is going through. I have enjoyed this decision process a few times over the past 25 years. The piece below provides a good opportunity to start the sharing of my story, although the piece infers that I won (or one), which is not the case. So, getting you the correct history would be helpful. Consequently, I will be looking back to 1994 this year and occasionally reflecting on the adventure my wife and children enjoyed/endured as I made a major life changing decision.

I’ll provide some of the fun highlights during 2019, the 25th anniversary of one of the most amazing years of my life. I’ll include them in my UPDATEs and please know that I’m doing it more for my kids, who were 11, 9 and 3 during the months of the campaign and 12, 10 and 3 when the County of Orange filed for Chapter 9 bankruptcy protection.

Twenty-five years ago last month, I enjoyed a meeting in the living room of one of my former business partners that would play a major role in eventually changing the direction of my career (see MOORLACH UPDATE — The Tarnished State — December 17, 2018).

After presenting a proposed business plan for a county-wide campaign, and considering the counsel I received that night, I wrote those some sixty individuals who were in attendance in that living room event a letter on January 12, 1994, about my intentions:

Please accept my sincerest appreciation for your attending my decision discussion session on Wednesday, December 29th. Your coming, your input, and your thoughts and prayers mean so much.

Trina and I have made a decision. I will be running for Orange County Treasurer-Tax Collector. I should be publicly announcing my intentions to run soon. June 7th will come quickly.

We’re confident that we have an excellent chance to defeat the incumbent if only he and I are in the race. The time is right.

I needed your input and I appreciated the dialogue, concern and sincerity of the discussion. Your involvement was very important to me. The decision has been made and it is time to act.

I would never take advantage of our relationship. But I also do not want to neglect it. That is why I am asking the following question in all humility. What can you do to help my campaign?

Page two of this letter allows you to put a check mark next to the possible avenues of assisting in this county-wide endeavor. Please check as many as you feasibly can. Then return page two in the enclosed envelope.

This will be a stretching and demanding time. I look forward to the challenge and the growth experience. It is much easier, believe me, knowing that I can count on your support and encouragement. Thank you very, very much.

Very truly yours,

John M. W. Moorlach

The next few weeks found me focusing on forming a campaign committee, hiring a campaign manager and treasurer, putting together a budget, obtaining a headquarters, pursuing endorsements, developing my fund raising efforts, preparing for my announcement and developing a press kit. All this and tax season, too.

And, as the expression goes, here we go again.

Democrat who lost D.C. bid in November says he’ll try for Sacramento next

Dave Min hopes to unseat state Sen. John Moorlach in 2020.


Dave Min, a UC Irvine law professor who was endorsed by the California Democratic Party in his unsuccessful congressional bid last year, will challenge Orange County GOP state Sen. John Moorlach in the 2020 election.

Min finished third in the June primary for the 45th Congressional District, missing the November runoff by 4,099 votes to Katie Porter, who went on to win the seat in November by defeating Mimi Walters.

Following the loss, Min said he was unsure of his next step in politics but kept hearing from former supporters who urged him to run for public office again. Eventually, he decided to compete for the 37th Senate District.

“We built a really strong and amazing grassroots movement and had hundreds of volunteers for our campaign,” said Min, 42, who lives in Irvine with his wife and three kids.

Min said he plans to make “protecting our environment, ending the gun violence epidemic, building more affordable housing, and protecting our immigrant communities” core platforms of his campaign.

Moorlach has served in the state Senate since 2015, winning a special election that year and then earning a full term in 2016, when he beat his Democratic opponent by 14 percentage points. The former Orange County Supervisor has branded himself a fiscal conservative who has sought pension reform at all levels of government. He launched his political career when he predicted Orange County’s 1994 bankruptcy during a successful bid to become the county’s treasurer-tax collector.

In contrast to Moorlach’s 24 years of experience as an elected official, Min has never held public office. Instead, Min points to a political resume that includes time as a senior policy advisor for the Joint Economic Committee of Congress and as policy director for the Center for American Progress.

The 37th Senate District runs along the coast from Huntington Beach to Laguna Beach and stretches inland through Costa Mesa, Irvine, and Tustin, and up to Orange, Villa Park and portions of Irvine. Republicans hold a 5 percentage point voter registration lead in the seat, but that’s half the of the advantage the GOP had four years ago when Moorlachone [sic] his first full term. The district also overlaps with several House seats and state assembly districts that swung Democratic in 2018, continuing a trend that has seen Republicans losing more and more federal and state seats in recent years.

If elected, Min, a first-generation Korean-American, would be the first Asian American Democrat to represent Orange County at the state level.


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MOORLACH UPDATE — Gubernatorial Inauguration — January 8, 2019

Yesterday was my first Gubernatorial Inauguration. I have siblings that have attended a Presidential Inauguration in D.C., but attending the swearing-in of the Governor of the most populous state in the nation is probably the next best thing.

I was interviewed by KCRA 3 and shared my concerns about the business community dealing with extended parental leave and its potential for discouraging companies from staying in California and that the state of the current economy should be of concern to the Governor and the Legislature. It is provided in the first piece below.

For FOX News 40, I reiterated that school districts were already in financial distress and adding a pre-K program would lead to even more pension and retiree medical costs, further exacerbating the difficult fiscal situation they are currently facing. It is the second piece below.

Also see KTLA 5 at

I did send out a congratulatory press release and look forward to working with Governor Newsom during the 2019-2020 Session:

I would like to congratulate Gov. Gavin Newsom on his inauguration as California’s 40th governor, especially how he brought up the passage in Jesus’ Sermon on the Mount about building a strong foundation for “our house.”

The new governor will release the specifics in his budget proposal on January 10. I am hoping the state’s “foundation” is used to take on the difficult fiscal condition of most of the state’s municipalities and school districts.

A proper foundation also will care for the least among us. As one who has worked to help the homeless and mentally ill since before my public service began 25 years ago, I was heartened by his words, “We will stop stigmatizing mental health and start supporting it.” I look forward to working with him on this and other critical issues.

3 takeaways from Gov. Newsom’s inaugural speech

Mike Luery

Gavin Newsom was sworn in Monday as California’s 40th governor.

Newsom took the helm with a speech laced with bold pronouncements about California’s values and the direction he envisions for the nation’s most populous state.

“People’s lives, freedom, security, the water we drink, the air we breathe — they all hang in the balance,” Newsom, 51, declared to a crowd of hundreds packed into a tent outside the Capitol.

Newsom said it’s California that can best defend U.S. values in the face of “incompetence and corruption” in Washington. He never mentioned President Donald Trump by name, but his speech was laced with sharp rebukes of Trump’s policies, particularly on immigration.

Here are 3 takeaways from Newsom’s inauguration speech

1) Newsom defended California values

During his inauguration speech, Newsom talked about the “California dream” and how the state is a model for the U.S., pointing out the high cost of living.

“We face serious challenges — some that have been deferred for too long,” Newsom. “We face a gulf between the rich and everyone else — and it’s not just inequality of wealth, it’s inequality of opportunity.”

Newsom’s California dream also includes reaching out to rural residents, as he did Sunday night in a benefit concert at Golden 1 Center in Sacramento. The concert served as a fundraiser for victims of the Camp Fire, which swept through Butte County in November.

“Many members of our rural communities feel that Sacramento doesn’t care about them, that we don’t even really see them,” Newsom said. “Well, I see you and I care about you, and I will represent you with pride.”

2) Newsom wants to invest in early education and paid parental leave

Newsom also is focused on families and education.

Surrounded by his four children, Newsom talked about his dedication to early education.

He said by fighting against “an achievement gap in our schools and a readiness gap that holds back millions of our kids,” the state could change the odds for success for millions of children.

Newsom has floated the idea of spending $2 billion to promote early childhood learning for kids under 5 years old.

“I think California has the funds to support it if we create a balanced budget, which we have to under state law,” said Art Torres, former chairman of the California Democratic Party.

Newsom is also thinking about providing six months of paid leave for new parents, a costly proposal for which there is no identified funding source.

“Something is going to bust soon, and this will probably be one of the biggest challenges for our new governor,” said Sen. John Moorlach, R-Costa Mesa.

Even some Democrats worry that paid parental leave is too costly.

“I don’t know whether we’re ready for that in California,” said Sen. Jerry Hill, D-San Mateo. “We’re going to have to take a step back to study and see how we’re going to fund it. I’m concerned about the economy.”

California has $14 billion in a rainy-day fund and will have a nearly $15 billion surplus in the 2019-2020 fiscal year. Newsom will introduce his first budget to the public on Thursday.

“I hope (Newsom) realizes that even though there’s a surplus right now, that can go like overnight,” said Rep. Jackie Speier, a D-San Mateo.

Newsom’s plan shows that he relates to the challenges of being a parent.

“We will support parents they need support, trust me, so that they can give their kids the love and care that they need,” he said.

3) California versus Trump

With Jerry Brown now settled in to his Colusa County ranch, Newsom is now the lead warrior in the state’s war of resistance to Trump.

“The administration in Washington is hostile to California values,” Newsom declared. “The country is watching us. The world is waiting on us and the future depends on us, and we will seize the moment.”

The new governor’s comments drew high praise from some of California’s representatives in Washington, D.C.

“California is going to lead,” said Rep. John Garamendi, D-Walnut Grove. “We’re going to push back on Mr. Trump and tell him no we can’t do it.”

California is saying no to the border wall that Trump believes is essential for national security.

“The president isn’t going to get his wall,” Garamendi predicted. “We’re not going to spend $5 billion or $5.7 billion foolishly on something that isn’t going to solve the problem,” he told KCRA 3.

There were signs in the speech that Newsom plans to defy Trump.

“We will offer an alternative to the corruption and the incompetence in the White House,” Newsom said.

The Associated Press contributed to this story

Newsom Touts a ‘California for All’ in Inaugural Address


Gov. Gavin Newsom Gavin Newsom was sworn in Monday and immediately drew sharp battle lines with President Donald Trump, pledging to enact “progressive, principled” policies as the antidote to the White House’s “corruption and incompetence.”

“People’s lives, freedom, security, the water we drink, the air we breathe — they all hang in the balance,” Newsom, 51, declared to a crowd of hundreds packed into a tent outside the Capitol.

Newsom took the helm as California’s 40th governor with a speech laced with bold pronouncements about California’s values and the direction he envisions for the nation’s most populous state.

His inauguration was by-in-large a victory celebration and he didn’t stray much from his campaign promises.

“We will never waver in our pursuit of guaranteed health care for all Californians,” he said.

On his agenda is more money for preschool and higher education, increasing wages and job opportunities, guaranteeing union rights, supporting the state’s immigrant population and tackling the state’s affordability crisis.

But there were few specifics on how he’ll get there. He never mentioned Trump by name, but said the president’s administration is “hostile to California’s values and interests” and blasted plans to build a wall along the nation’s border with Mexico.

“The country is watching us, the world is watching us. The future depends on us, and we will seize this moment,” he said.

Newly installed U.S. House Speaker Nancy Pelosi, a San Francisco Democrat, was among those in attendance for the inaugural address. She got a standing ovation when she entered, an affirmation of the strong backing her opposition to Trump has in California’s Democrat-controlled capital.

A church choir from Compton got the crowd on its feet with upbeat renditions of popular songs to kick off the event, reflecting the younger, flashier style Newsom will bring compared to his 80-year-old predecessor, Jerry Brown.

In another sign of the generational shift, Newsom’s 2-year-old son Dutch wandered on stage during the speech. Newsom, who has four children, picked him up and continued delivering his speech. The boy then walked around stage dragging a blanket, drawing laughs from the crowd until Newsom’s wife took him off stage.

Even as he needled Trump, Newsom offered an overture to voters in rural California, millions of whom voted for Trump and John Cox, Newsom’s Republican rival in November.

“I recognize that many in our rural communities believe that Sacramento doesn’t care about them — doesn’t even really see them,” he said. “I see you. I care about you. And I will represent you with pride.

While touting the California Dream and strong economy, Newsom also acknowledged the state has problems, from a homelessness crisis to a gulf between the state’s wealthiest and poorest residents to failing schools, all of which he called “moral imperatives.” Beyond Trump, he pledged to take on drug companies, the gun lobby, polluters and payday lenders.

Newsom praised Brown, a longtime family friend, but indicated he would strike out a separate path from the fiscal restraint Brown made a hallmark of his last eight years in office. Brown sometimes angered legislative Democrats by rejecting big-ticket social spending items.

Newsom, meanwhile, already has pledged to expand access to early childhood education, reduce the cost of community college and extend family leave. He suggested Brown’s method of resisting more spending in favor of saving needed rethinking.

“For eight years, California has built a foundation of rock,” he said. “Our job now is not to rest on that foundation. It is to build our house upon it.”

More specifics on Newsom’s plans — including a “Marshall plan” for affordable housing, a reduction in drug prices and criminal justice reforms — will be outlined in the coming days.

“We’re committed to launching a Marshall plan for affordable housing and we’ll lift up the fight against homelessness from a local matter to a statewide mission,” Newsom said.

Newsom’s inaugural address and celebration highlighted California’s diversity. His wife, Jennifer Siebel Newsom, delivered opening remarks in Spanish and a Mexican-American band from Richmond performed.

Throughout his speech, Newsom sharply contrasted Trump’s rhetoric on immigrants, saying California will not have “one house for the rich and one for the poor, or one for the native-born and one for the rest.”

For his part, Newsom said there should be a moral responsibility to aim high.

“Doing what is right even though it is hard, that will be the foundational mission of our administration,” he said. “We will be California for all.”

But his something-for-everyone approach has some Republican lawmakers worried about the cost of existing public obligations.

“These pension plans, these retiree medical costs are really taking a burden,” said Sen. John Moorlach, R-Costa Mesa. “So before we add on we should just step back.”

“All these dreamy ideas, some have merit, but they can’t be just a blank check. The people of California cannot afford that,” said Sen. Jim Nielsen, R-Gerber.

Newsom supporters back his vision while believing that he should and will be a responsible spender.

“Just because we have a $14 billion surplus right now is not anything to crow about because first of all that can be gone instantaneously overnight,” said Congresswoman Jackie Speier, D-Hillsborough.

Gov. Newsom is expected to release the first draft of his state budget on Thursday and that will go a long way in answering the persistent questions about how he plans to pay for his vision for California.


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MOORLACH UPDATE — Broke Schools — January 7, 2019

California has a new Governor. And he was greeted with the lead story, top-of-the-fold, piece below in The Sacramento Bee. Consequently, I informed the members of the media at his inauguration that interviewed me that the state needs to strengthen its financially distressed school districts before we add a pre-kindergarten program on their plates.

Dealing with the school districts that have generous pensions and lifetime retiree medical plans will be one of the first challenges Gov. Gavin Newsom will face. I’ve just been sayin’.

I want to wish our new Governor well. He stated today he would protect the state’s Rainy Day Fund and I’m here to help him in that regard. And, if he wants to know what the County of Orange did to reduce its retiree medical liability, I’m at his disposal.

The economy is booming.

Why are so many

California schools broke?


Facing a $36 million deficit and a possible state takeover, the top budget officer at the Sacramento City Unified School District has a sober message for his counterparts around California.

Sacramento is “just one of the first dominoes,” said John Quinto, the district’s chief business officer.

By any measure, Sacramento City’s distress is worse than the vast majority of California school districts.

But Quinto’s warning hints at looming problems for many more: The costs of pensions, health care and special education outpace new revenue they’re receiving from the state and they put some schools on a trajectory for red ink.

“Those things combined are finding most school districts in a budget-cutting mode, and it’s a shocker in what has been a growing economy,” said Kevin Gordon, a lobbyist whose firm, Capitol Advisors Group, represents large school districts.

Those stresses are driving education advocates to put forward proposals that would ask Gov.-elect Gavin Newsom to set aside more money for K-12 schools. A rush of new funding wouldn’t necessarily spare Sacramento City, but it could put off a reckoning for many other districts.

So far, the options on the table include:

▪ Assembly Bill 39 by Assemblyman Al Muratsuchi, D-Torrance, which would swell education spending by $35 billion. For context, California budgeted $78.4 billion in state and local funds for K-12 school in this financial year.

▪ A pledge by Assembly Democratic leadership to help schools pay their rising pension bills, which could take the form of a direct payment to the state’s two largest pension funds or an unrestricted funding boost for school districts. Assembly Budget Committee Chairman Phil Ting, D-San Francisco, included that goal last month when he previewed the party’s objectives for upcoming budget negotiations.

▪ A general appeal from K-12 advocates asking Newsom to put more money into education than law requires. To them, more is better, but they’d consider anything over the minimum to be a win.

Gavin Newsom’s priorities

It’s not clear yet whether Newsom will get behind any of the proposals.

His education platform centered on expanding preschool for youngsters, helping families open college savings accounts and offering Californians two years of tuition-free courses at community colleges.

The preschool program he favors is a particularly big-ticket item, and could run north of $1.8 billion, according to an outline he released to news organizations.

But education advocates think they have a good case, particularly when the state budget is on track to fill its “rainy day” fund and other reserves with $16 billion, and notch another $14.8 billion surplus that lawmakers could use for practically anything. Brown significantly increased education spending over the past years, but also prioritized building reserves to prepare the state for a recession.

The state’s education budget is governed by Proposition 98, the 1988 initiative that sets school funding based on a formula that accounts for the overall state general fund, student attendance and growth in personal income.

That netted K-12 schools $78.4 billion in the budget outgoing Gov. Jerry Brown signed in June, up from $56.6 billion in 2007-08. The Legislative Analyst’s Office in a November report projected another $2.4 billion increase in the 2019-20 budget.

Despite the revenue boost, schools from Sacramento to San Diego are reporting shaky finances.

Sacramento’s troubles were laid bare in a December report from the state’s Financial Crisis and Management Assistance Team, which warned of growing deficits for the foreseeable future.

The Paso Robles superintendent resigned in December when his school district reported that it faced a $3 million budget shortfall over two years.

And, teachers are preparing to strike in Los Angeles on Jan. 10, where their union is advocating for more hiring despite warnings from the Los Angeles County Office of Education about potential deficit spending. Similar conflicts have played out recently in Fresno and in San Diego.

Sen. John Moorlach, R-Costa Mesa, said the pressures driving up education expenses are real, but he warns against a blanket bailout of school districts. He published a report in November that ranked the financial health of California’s public school districts based on their annual financial reports. Some of the biggest districts in the state —Los Angeles, San Diego, Fresno, Long Beach and Sacramento — are in the worst shape.

He said he’d support increasing education spending if he had some assurances that unions would give ground on negotiable benefits like retiree health care.

“We can’t just give districts that have not been good stewards more money. You have to ask for something in return,” he said.

Rising bills from CalSTRS, CalPERS

The factors driving up school expenses are well known. Since 2014, California schools have been required to chip in an increasing amount of money to secure the pensions of current teachers and to pay down unfunded liabilities for retirees at California State Teachers’ Retirement System and the California Public Employees’ Retirement System.

In 2013, schools kicked in 8.25 percent of a teacher’s earnings to help fund pensions. That rate is climbing to 19.1 percent by 2020.

Many California schools are recording slight declines in student enrollment, too, which leads to funding reductions. Meanwhile, they’re spending more on special education programs and seeing climbing health care costs.

That combination led WestEd, a San Francisco nonprofit, to declare in an April report that California schools faced a “silent recession.”

“California has significantly increased education funding in the last seven years. However, many school districts have not been able to keep up with even larger increases in their bills. That’s why we need to renew our commitment to K-12 funding as the state’s top priority,” said Muratsuchi, the assemblyman behind the bill that would boost education funding by tens of billions of dollars.

The funding proposals from Assembly Democrats conveyed to some education lobbyists that lawmakers were serious about giving schools some relief, particularly on their pension costs.

“For years, the Legislative Analyst’s Office has highlighted how rising pension rates are coming to a head with an impending economic correction. It is heartening to see Assembly leaders proposing to apply one-time surpluses towards school pension liabilities. It’s just smart budgeting and keeps money in the classroom,” saidDerickLennox, a lobbyist at Capitol Advisors Group who focuses on school pensions.

Quinto, from the Sacramento city school district, doesn’t expect a big windfall from the state budget anytime soon. He anticipates that Newsom will be careful in figuring out how we wants to use the state’s surplus, which could mean flat revenue for schools in the near future.

“We’re all struggling with the same challenge,” he said. “I’m here to be part of the team that rights the ship.”


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MOORLACH UPDATE — Going Up Silly Hill — January 6, 2019

The Hill, out of Washington, D.C., occasionally takes a look at what is happening in California. With the inauguration of our next Governor tomorrow, it’s a good time for them to interview a number of legislators and mine for their perspectives on what the future may hold. It does so in the piece below, where I’m sure I said “free rein.”

It’s interesting to note that The Hill was founded in 1994, the year of my unsuccessful but historic campaign to unseat Orange County’s only Democrat in either a Congressional, state or countywide seat. We used the phrase “going up silly hill” to describe the incumbent’s behavior. As interest rates rose, instead of disengaging on the technique of borrowing, Mr. Citron and others did the opposite and borrowed more. This made the impending fiscal implosion even worse (see the LOOK BACKS in MOORLACH UPDATE — OC Register — February 25, 2010 and MOORLACH UPDATE — LOOK BACKS — January 23, 2010).

The good news? I have been reassigned to the Senate Budget and Fiscal Review Committee this coming year. This will give me another opportunity to weigh in on the budget process and remind my colleagues how unpleasant economic downturns can be (see MOORLACH UPDATE — Judicious Budget — December 18, 2018). It looks like pursuing a healthy fiscal balance may be achievable. The fun starts this week.


California Dems under pressure to deliver after big gains in 2018

Reid Wilson

When California Gov.-elect Gavin Newsom (D) takes the oath of office on Monday, he will assume control of an army of progressives who hold virtually unchecked power to implement an aggressive agenda – and with it, the pressure to deliver for a horde of interest groups who got those Democrats elected.

But Democratic leaders in Sacramento are conscious that their good fortunes – supermajorities in both chambers of the state legislature, a huge budget surplus and record-level cash reserves – bear a significant measure of political risk.

The healthy financial picture of the nation’s most populous state can turn quickly with even a mild economic downturn. Its $14 billion in rainy day funds could be wiped out within a year to cover new deficits. And the Democratic supermajority would likely take the blame, even if root causes are far beyond their control.

State legislative leaders said in interviews over the last several weeks that they recognize the pressures they face from interest groups eager to make California a progressive bastion.

“Stakeholders have a job to do. Special interest groups have a job to do,” said state Sen. Holly Mitchell (D), who heads the Senate Budget Committee. “They have to push as hard as they can to the left to make sure that what we ultimately end up with is a balanced approach that helps California residents.”

At the same time, many expressed caution of going too far. Several recalled the pain of the Great Recession, when California’s budget shortfall reached north of $20 billion a year, forcing excruciating budget cuts and tax hikes.

“We are going to have to exercise some self-restraint because we have a lot of things we would like to reinvest in and fund,” said state Senate President Toni Atkins (D). “We’re in good shape in terms of our budget. We’re in the best position we’ve been in for generations in California, so I think we’re going have to be mindful of protecting our reserves.”

For the last eight years, Gov. Jerry Brown (D) played the fiscal hawk standing athwart the most ambitious urges of progressives who wanted to spend big on ongoing new projects, giving Democrats a convenient excuse when those interest groups came calling.

But Brown is headed to retirement on his rural California farm. His replacement, Newsom, won election on an unabashedly progressive platform, including health care for all and establishing universal preschool. Now Newsom must balance delivering on those promises with maintaining the state’s fiscal health.

“The governor is the one who will feel both the blessing and the curse of the overwhelming Democratic power, because he’ll be the one who has to say no,” said Thad Kousser, a political scientist at the University of California-San Diego. “It makes it easier to say no to the left flank when there’s no money.”

Already, Newsom has offered hints that he will favor short-term appropriations over creating new long-term financial obligations, which mirrors the approach both Brown and former Gov. Gray Davis (D) took during leaner budget times.

Newsom will propose spending $1.8 billion on new early childhood education initiatives in the coming days; the Los Angeles Times reported that $1.5 billion of that spending would be a one-time expense.

“One-time spending is going to be absolutely favored over ongoing appropriations,” said Mark Weideman, one of the top lobbyists in Sacramento.

Legislators “have been through these boom and bust cycles, and they’ve been burned by it, and they’re very cautious.”

Senior legislative leaders said they favored those sorts of year-by-year steps.

“Having a heavy focus on one-time costs would be a very prudent way to spend some of our revenue rather than committing in a large way to expanding ongoing programs,” said Assemblyman Phil Ting (D), who heads the Assembly’s Budget Committee.

Mitchell, the Senate Budget Committee chair, said eliminating childhood poverty and closing an achievement gap that is one of the widest in the nation will “take sustainable, core infrastructure change, not just one-time spending.”

There is little, if anything, that minority Republicans can do to block or even influence legislation. The legislature recently killed a rule that required every bill introduced to receive even a cursory hearing, meaning Republicans cannot even force Democrats to take unpopular votes. Most Republican members said they would be forced to hunt for opportunities to shape legislation.

“I think they have free reign,” said state Sen. John Moorlach (R). “If the Democrats go up silly hill and it crashes and burns, that’s going to be a disaster.”

Perhaps no issue is more fraught than creating a single-payer health care system, another Newsom priority backed by prominent progressive groups like the state nurses’s union.

A single-payer bill passed the state Senate last year, without a funding mechanism, before dying in the Assembly. This time around, legislators said they would allow a special commission to study the issue over the course of the year rather than racing to deliver something to Newsom’s desk.

“I fundamentally believe that we can get to a single payer system or something like it,” said Jim Wood (D), who chairs the Assembly’s committee on health. “There’s just a lot of things that need to happen in this process to make it work.”

Several other more immediate crises are likely to dominate the legislature’s time this year. Recovering from devastating wildfires that ripped through several Northern California cities will cost hundreds of millions, if not billions of dollars. And a dearth of housing coupled with state law that allows cities to block new density has caught lawmakers’ eyes.

“Those seem to be the two crises that members are talking about the most. Both issues are things that we’ve kind of started on, but we know we have a heck of a lot of work to do,” said Assembly Speaker Anthony Rendon (D).

The cross pressures Newsom and Democratic legislators will face will be shaped, in part, by the mandate they choose to claim from November’s elections.

Voters gave Democrats a more significant majority in the legislature than any they have held in modern history – and Newsom is the first Democrat to succeed another Democrat in the governor’s mansion since 1886 – but whether that amounts to a mandate for any significant change is unclear.

“He doesn’t really have this mandate for change,” Kousser said. “He has a mandate for continuity.”

Democratic leaders say they hope to spend the legislative session making progress, if not completing work, on Newsom’s first-year agenda. But they know interest groups stymied under Brown will come calling.

“Sometimes it’s harder to have money than not have money,” Atkins said. “But I’ll take the having money and having to be restrained and responsible.”


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