MOORLACH UPDATE — Governor’s 2017-18 Proposed Budget — January 11, 2017

This will be my third cycle on providing input on the State’s annual budget. This is my second time to comment on the required January release of the annual budget by the Governor (see MOORLACH UPDATE — Governor’s 2016-17 Proposed Budget — January 8, 2016 january 8, 2016 john moorlach).

The last three years we have provided what I consider the priorities that should be pursued. This year’s analysis is titled “6 Key Measures of California’s Fiscal Health 2017-18” and can be seen at It can also be seen at the Orange County Breeze (see

The OC Register made the budget release a front-page story and it is provided below. One observation I would offer is that the Governor is hoping to spend $4.2 billion on roads, and $42 billion over the next ten years, but it will require a funding source, like a gas tax. Consequently, it is an unfunded portion of the proposed budget. I wish a real increase in transportation spending was in the budget. This Governor has only spoken about repairing the State’s roads, he has never reflected it as a real budget priority.

Governor Brown also talks about unfunded liabilities, but his budget doesn’t raise a finger to address them above and beyond the minimum requirements.

Here’s the quote that was included in Politico:


— Sen. John Moorlach, R-Costa Mesa: “I wanted to see more on transportation. I wanted to see our unfunded liabilities addressed.”


This budget is a bust.  It has no reforms and provides no major effort to right the ship of state.  I see it as a gesture by a lame duck Governor who is riding out his last two years.  That’s strong.  But, I don’t like to see missed opportunities.


The Hill, out of Washington, D.C., was present yesterday and provides its perspectives in the second piece below.  It does a service by reiterating the biggest flaw in our revenue sources, the most progressive personal income tax structure in the country and how to ride with it.


The OC Register has another online piece on the city of Laguna Beach.  Last year I worked on SB 1463 to assist in the discussion of undergrounding power lines that are along Laguna Canyon Road (see MOORLACH UPDATE —       Rejection/Disappointment — September 27, 2016 september 27, 2016 john moorlach).  This third piece does not mention the need to separate motorists from pedestrians, as there have been a number of tragic fatalities in this city.  I have reached out to the city to see if my office can assist in this priority.




Fiscal caution in age of Trump


Brown’s budget is shadowed by belief that California might lose federal money.

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Caution is the key word in Gov. Jerry Brown’s proposed 2017-18 state budget, just as it has been every year in his second administration.

But the $179.5 billion plan Brown unveiled Tuesday is overshadowed by the first deficit in four years – at $1.6 billion – and the uncertainties of how California might fare in a Donald Trump presidency.

The budget reflects the governor’s attempt to keep key projects funded despite tax revenue that isn’t rising as quickly as it was two years ago. Brown said Tuesday the plan doesn’t consider what President-elect Trump might do with the Affordable Care Act and the reluctance of California’s leaders to deport immigrants – two issues that could affect federal funding to the state.

“We can’t budget what hasn’t happened yet,” Brown told a roomful of reporters.

Federal subsidies to Medi-Cal currently top $16 billion. And the federal government could penalize California for its stance on deportation by pulling back on other subsidies.

“We’re going to have to hold on to our hat here. This is going to be a rough ride,” Brown said. “Whatever happens, we’re going to live with it.”

Fiscal trepidation isn’t new to Brown. In each of his annual budget proposals – which trigger legislative negotiations that typically end in May with a revised spending plan – he’s followed a similar recipe: cautious spending while boosting state emergency reserves.

The latest proposal pushes the state’s rainy day fund to $7.9 billion, nearly two-thirds of the governor’s original goal.

“Revenues are precarious and he’s properly acknowledging it,” said state Sen. Jim Nielsen, R-Gerber, Senate budget vice chairman. “The governor is really being restrained. We have to be very careful and sensitive to looming deficits.”

Tax revenue in California relies heavily on spending, particularly by the affluent. It is growing, though not at the pace once envisioned by budget planners. Analysts say it is still too early to predict a recession, even a mild one, but they agree the governor can’t be too careful, especially with a looming X-factor like Trump.

“The proposal reflects a much deeper level of uncertainty than in prior years,” said Chris Hoene, director of the California Budget and Policy Center, an independent think tank.

It’s a budget that is “safe, conservative and leaves the legislators room to maneuver when they know more about factors they can’t control,” Hoene added.

While mostly holding the status quo, some programs took big hits.

Brown held back $400 million that could provide some affordable housing because he and legislators couldn’t agree how it should be spent.

Brown also eliminated $33.4 million for California to expand medical residencies in underserved communities. This is the first year of a three-year, $100 million investment in the program, which also is on the chopping block.

“We are highly disturbed that these critical dollars have been eliminated,” said Carmela Castellano-Garcia, chief executive of California Health+ Advocates. “We are struggling to have the primary care that we need to serve.”

Additionally, the governor’s office plans to delay implementing a bill that would increase access to mental health care.

Some critics expressed frustration that Brown isn’t setting aside more money for future debt even as it doesn’t spend more on key programs.

“I respectfully disagree with the priorities set forth in the proposed budget,” said state Sen. Janet Nguyen, R-Garden Grove, in a written statement.

“In my opinion, in light of the Governor’s forecast that revenues are slowing, we should demonstrate fiscal responsibility by more aggressively building our rainy day fund, paying down the more than $240 billion in debt and sustaining programs that are important to Californians; among them education and healthcare.”

Hoene, the budget analyst, said the poor probably will bear the brunt of any federal backlash.

“There’s really no way to predict what’s coming from the federal government,” Hoene said. So “we have a budget with a lot of placeholders.”

Some called the spending plan overly cautious, especially pension reformers, who said Brown was ignoring a long-term pension deficit of $260 billion.

“He’s not moving the dial. He’s not taking any major initiatives to reform California,” said state Sen. John Moorlach, R-Costa Mesa. “He’s going to ride it out, and the next governor will have to deal with this mess.”

Moorlach chided Brown for “not spending a penny” on California’s long-term pension debt or unfunded liability.

“It’s the elephant in the room,” he said.

Jon Coupal, president of the Howard Jarvis Taxpayers Association, likened Brown’s pension strategy to “talking about the color of a house without acknowledging it has termites.”

On transportation, the budget reflects $4.2 billion in improvements.

But Moorlach and others said that is not enough to even begin repairing California’s crumbling roadways.

Moorlach said state money found for Medi-Cal and child care could be better spent on the roads.

“These people that benefit from Medi-Cal and child care will have to pay a higher gas tax,” Moorlachsaid. “The governor hasn’t made transportation a priority.”

Staff writer Margot Roosevelt contributed to this report.

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California faces budget gap amid uncertainty over Obamacare



SACRAMENTO, Calif. — California Gov. Jerry Brown (D) on Tuesday proposed billions of dollars in cuts to state programs as falling revenue growth drives tax collections hundreds of millions of dollars under projections.

The cuts are aimed at eliminating a $2 billion budget gap. That’s a far smaller deficit than the $27 billion hole Brown inherited when he took office in 2011, but it represents a reversal of fortune after years of revenue growth fueled by a booming stock market.

“California has the most progressive tax system in the United States. We do ask those who make the most money to pay the highest percentage of taxes. But as a corollary, we have one of the most unreliable revenue bases in the entire country,” Brown said Tuesday. “It requires we keep a very close eye on the balance of our budget. And while we have sometimes the highs, they are followed always by the lows.”

Personal and corporate income taxes and sales taxes have all fallen short of budget projections, said Michael Cohen, Brown’s finance director. California relies disproportionately on capital gains tax revenue, meaning the state is unusually dependent on the performance of the stock market.

The budget proposal anticipates spending $122.5 billion over the next year, slightly below the $122.7 billion California spent last year.

California’s revenue forecasts have fallen short of projections in five of the last seven months. At the same time, Brown said, state budget projections could be thrown into chaos if Republicans in Congress roll back the Affordable Care Act, which provides billions of dollars to California’s Medicaid programs.

“I know the Republicans are on that track [to repeal the ACA], but the reality is going to be far more difficult and far more disruptive than they’re expecting,” Brown said. “If they do go down that road, it will be extremely painful for California.”

Medi-Cal, the state’s Medicaid program, anticipates spending $102 billion over the next year. The federal government covers most of those costs under Obamacare’s Medicaid expansion program, money that could be at risk if Congress makes significant changes to existing law.

Some Republicans applauded Brown’s cautious approach, but they warned that changes to the Affordable Care Act at the federal level were likely to cost California more than Brown’s budget anticipates.

“If ObamaCare blows up, we’re going to have real trouble,” said state Sen. John Moorlach (R), who represents Orange County. “Maybe the play is, let’s try to unwind this in a humane way.”

Brown’s budget proposal, which now goes to the Democratic-controlled legislature for months of negotiations, calls for cutting back projected growth of some state programs. It also adjusts money that would go to public schools under Proposition 98, a voter-passed measure in 1988.

Brown will ask legislators to implement some new taxes and fees, including a gas tax hike that would bring in $5 billion over a decade and a $65 fee on new vehicle purchases. Voters in November approved other new revenues, including a $2 per pack increase in cigarette taxes and an extension of tax hikes on the wealthiest Californians first passed several years ago.

And Brown plans to ask the legislature to extend California’s cap-and-trade program beyond its current 2020 sunset date. The program has raised billions of dollars in auction proceeds to reduce greenhouse gases, and Brown’s budget anticipates another $2.2 billion in sales.

The proposal also plans to set aside more than $1.1 billion for California’s rainy day fund. By the end of the budget cycle, Brown’s budget anticipates having set aside $7.9 billion for the next economic downturn, about 6 percent of the entire state budget.

State budget analysts anticipate continued growth in coming years, though at a slower rate than in the best years of the current economic recovery.

“California is growing, but less than we expected,” Brown said. But, he warned: “We’re now in almost the third-longest recovery” in post-war history. “So a downturn is inevitable.”

“We’re on the cusp of a financial calamity, and the governor senses it,” Moorlach said.

Brown said even a modest downturn could cost the state $18 billion in lower tax receipts.


Laguna Beach stories to watch in 2017

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Here are four topics expected to generate interest in Laguna Beach in 2017.

Utility undergrounding

City Manager John Pietig made it clear during the Dec. 13 City Council meeting that burying utility lines along Laguna Canyon Road and other parts of the city are a priority. The improvements, he said, will reduce the risks of wildfires caused when downed utility lines ignite brush and vegetation.

Pietig and the City Council decided that at least $1 million of the $2.2 million of the expected funds generated by Measure LL – which raised transient occupancy hotel taxes to pay for city services and operations – would be used to fund undergrounding.

Pietig’s focus on citywide undergrounding follows a veto of legislation by Gov. Jerry Brown in September. The bill – spearheaded by state Sen. John Moorlach on behalf of the city – would have required the state to identify areas most at risk for wildfires and would have required the California Public Utilities Commission and Department of Forestry and Fire Protection to develop enhanced plans to prevent fires from utility and power lines in Laguna.

Laguna Beach City Council member Bob Whalen traveled to Sacramento several times to testify before committees regarding the legislation. He vowed to continue his efforts despite Brown’s veto.

City officials called for citywide undergrounding of utilities after a 15-acre wildfire in July 2015 that started when trees fell into utility wires, causing a power surge that sparked flames. Whalen said the city “dodged a bullet” with that fire thanks to favorable winds and firefighters’ efforts. He said he immediately contacted Southern California Edison and urged the utility company to partner with the city to reduce the imminent threat of fire.

Laguna Beach is the only city in the state to make a formal appearance in the PUC fire safety proceedings. Laguna Beach Fire Chief Jeff LaTendresse has testified at commission proceedings urging Laguna Beach be reclassified to a high fire-hazard area.

Earlier this year, the PUC placed Laguna Beach in a low fire-hazard area, meaning that the city would not receive priority for mitigation measures.

Public input for the Downtown Specific Plan

The Planning Commission is reviewing a comprehensive plan to enhance and preserve Laguna’s downtown – an area considered the city’s social, cultural and civic hub. The commission is expected to review more of the plan on Wednesday. The final review by the City Council is planned for October.

In July, MIG, an urban planning firm presented ideas for building height, landscaping and crosswalks. The company also suggested possible uses for two parcels along Broadway near the intersection of South Coast Highway and Main Beach. In one case, they suggested the gas station now there might not be the best use of the area. Instead, they said, a two-story building including restaurants and public plazas might be a better fit. MIG also reviewed parking.

The Downtown Specific Plan was adopted in 1989 after several years of work by a citizens advisory committee to identify significant planning issues and develop a policy base. The plan has been amended nine times. In 2000, the area was expanded to include the Boys & Girls Club on Laguna Canyon Road and the Civic Art District.

Village entrance

City Council will review the Village Entrance Project as part of a joint meeting with the Planning Commission Feb. 1. The City Council is expected to give final approval this summer and project completion is planned for 2020.

City staff will present a new alternative that includes elements of two options the City Council previously reviewed. This third option is expected to bring the cost closer to the $6.5 million target.

The project – decades in the making – looks to aesthetically improve the city’s entrance on Laguna Canyon Road at Broadway and Forest Avenue. The plan is to enhance the location and include parking and space for the public facilities. Improvements include landscaping, a pedestrian and bicycle pathway and exterior renovation of the historic sewage treatment plant.

The city has worked on ways to spruce up the area for decades. There have been dozens of public meetings and walking tours to gather feedback.

ACLU lawsuit

In 2015, the American Civil Liberties Union sued Laguna Beach in federal court over the city’s treatment of disabled homeless people.

The ACLU is asserting that the city is required to provide permanent supportive housing for homeless individuals who are mentally or physically disabled and feel they can’t stay at the alternative sleeping location in Laguna Canyon. The ACLU also claims that the city is prohibited from enforcing state and local anti-camping laws against persons lodging on public property who cannot gain access to the sleeping location.

The case is set for trial on April 25. The parties are in the process of completing discovery and other pretrial preparations, said City Attorney Phil Kohn.

Rulings from the federal court are expected on motions that were previously argued and taken under submission. These include a motion by the plaintiffs for class-action certification and motions by both the plaintiffs and the city for summary judgment. The court’s rulings will likely have a bearing on the ultimate issues for trial and may influence settlement discussions, which are at a standstill.

Contact the writer: 714-796-2254 or or on Twitter:@lagunaini


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