MOORLACH UPDATE — 2018-2019 Budget Recommendations — January 4, 2018

The 2018 Session started yesterday afternoon with a bang. Sen. Andy Vidak (R – Hanford) introduced Senate Resolution 69, a resolution to permanently expel Sen. Tony Mendoza (D – Artesia) from the California State Senate. This caused the Democratic Caucus to immediately meet in a closed door caucus, for several hours, while the Republican Senators simply spent the afternoon and early evening waiting for them to conclude. A little after 6 p.m., the Senate reconvened and Sen. Mendoza gave an “I’m taking a one month leave of absence” speech. This is something he should have done when the President Pro Tem offered him this solution at the end of last year, during the recess. And then yesterday’s Floor Session closed with a quick thud. No comments allowed from anyone in the Chambers. The fun has begun.

I return next week for a boatload of work. I have four two-year bills to address before committees, SB 656, SB 681, SB 688 and SB 722 (see the 2017 legislative package on my Senate website). I will also have Public Employment and Retirement Committee, Judiciary Committee, and Governance and Finance Committee meetings. Plus there will be two joint hearings, where the Senate and Assembly combine, addressing sexual harassment and the Ghost Ship fire. And, if that was not enough, the Governor will be announcing the 2018-19 Budget on January 10th.

In anticipation of one of next week’s upcoming events, I decided to submit a snarky but extremely serious op-ed on the proposed budget to the San Francisco Chronicle. It is the piece below.

The year of our Lord 2018 is here and it’s game on, as we try to message to the Governor and the Legislature that California needs to turn its ship of state around. We issued an ICYMI yesterday that proves the necessity of minding the fiscal store here in Sacramento (also see my Senate website at http://district37.cssrc.us/).

Happy New Year!

More money than expected for new budget

Will Gov. Brown propose to spend more or reduce debt?

By John Moorlach

http://www.sfchronicle.com/opinion/openforum/article/Will-governor-propose-to-spend-or-save-12472049.php#photo-14786355

While you’re struggling to make ends meet, the California Legislative Analyst’s Office reported that this year the state’s coffers will overflow with an additional, unexpected $7.5 billion of your tax dollars. Will the governor propose to spend it or save it?

On Jan. 10, Gov. Jerry Brown is scheduled to release his budget proposal for fiscal 2018-19, which begins July 1. It will be his 16th and last budget proposal and likely will include a small surplus, more funding for the Rainy Day Fund and money for his pet boondoggle, the high-speed rail project.

Meanwhile, the stock market is up some 20 percent for the year since our new president was elected. And the value of your home has been rising at a rapid clip. You’re doing great, so you’re able to spend more for gas and pay a little more in taxes. You’re a giver.

But, what about those with no savings? No stock portfolio? No home? Those who cannot afford to live close to their job? You know, those in the middle class the Democrats always talk about protecting? Those who oppose the $5.5 billion-a-year gas tax whom the governor referred to as “freeloaders”?

Guess what? The Democrats have bamboozled this significant segment of our state’s people, because the new budget, like last year’s, likely will not include adequate reforms to reduce the $8 billion to fund pension liabilities.

In 2012, Proposition 30 was approved by voters as a “temporary” fix to get us past the Great Recession, and was to expire in 2018. But, at the behest of the public employee unions and other special interests, California’s voters approved Proposition 55 in November 2016. It extended this reliance on the highest income and sales tax rates in the nation another 12 years!

Then earlier this year, the Democratic supermajority in the Legislature increased your gas tax, effective Nov. 1, 2017, starting at 12 cents more a gallon. It goes on indefinitely, with adjustments for inflation. All this tax revenue, yet the Golden State’s fiscal condition is awful.

There is some good news, however: The state’s ranking on fiscal condition no longer is the worst — it has risen to 43rd, according to a 2017 Mercatus Center Study. (New Jersey is the worst.)

We know the Democrats aren’t going to decrease tax rates and these taxes will be collected. So, what to do? As a serious corrective, here are some proposals Brown should announce in his new budget to smartly use that $7.5 billion in unexpected revenues.

Pay off bonds. The Department of Finance can proffer a list of lenders who should be paid off in advance. A state cannot rack up a $169 billion deficit without borrowing money. Sacramento could use a strategy whereby it puts in escrow enough cash to service the debt, thus saving the interest payments. The controller could then call the debt paid, as the funds in escrow will pay off the bonds as they are regularly scheduled.

Make another prepayment on public employee pension debt to both the California Public Employees’ Retirement System (CalPERS) and California State Teachers Retirement System (Cal STRS), as he did last year. This will reduce required payments in future years. This debt comes at a 7 percent cost, so paying it down is a no-brainer.

Get more aggressive in paying down the state retiree medical liabilities — exceeding $76.7 billion as of June 30, 2016. (A revised estimate is expected later this month.)

Pay cash. Get really radical and start making infrastructure investments without borrowing. The bond measures on the June and November 2018 ballots would be unnecessary if California made improvements the way many of us do on homes or business buildings.

Jan. 10 will let you know if Brown is trying to balance his budget with some serious balance-sheet debt reductions. Otherwise, his legacy will be presiding over a financial bottom-dweller state.

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

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