MOORLACH UPDATE — 2017 State Per Capita UNPs — April 2, 2018

My efforts to provide a metric for all of California’s 482 cities is getting statewide recognition and now national attention (see Senator John Moorlach Ranks California’s 482 Cities for Financial Soundness). Truth in Accounting provides a very kind compliment in the first piece below. We are apparently kindred spirits.

I recently provided the rankings for all of California’s 58 counties in (MOORLACH UPDATE — San Francisco County #56/57 — March 20, 2018 ). I am proud that Orange County moved from #46 to #28. It indicates, to me anyway, that the hard work I put in overseeing Orange County’s budget during the Great Recession and pursuing pension and retiree medical reforms really benefited our county’s residents.

This week, the State Controller released California’s June 30, 2017, Comprehensive Annual Financial Report (CAFR). Consequently, we now have the rankings of the 50 states for you. California is not the last to release its CAFR. Five other states still need to issue theirs. But, I’m releasing the results anyway, using their 2016 CAFRs for those five delinquents. Should there be any major movements after the last five 2017 CAFRs are released, I’ll let you know. It’s the second piece below.

A few observations. The first is a confession. Last year we made an error and used the CAFR for New York City, which encompasses five counties, not New York State. As a result, New York moved up 10 places in my rankings for Unrestricted Net Position (UNP). The second is that two states are going in the wrong direction, Rhode Island and Maryland, dropping two places each, respectively to #43 and #44. The third is that this movement allowed California to move up one position, to #42.

When I was elected to the California Senate in 2015, the June 30, 2014 CAFR for California was #46. The next year, in 2016, California moved to #44. It advanced to #43 in 2017. All to say, since I’ve arrived, California has moved up every year, as it is #42 in 2018. You’re welcome.

Now that I’ve just pulled a classic political stunt by taking credit for California’s advancement, I must state that enacting the recent Government Accounting Standards Board (GASB) requirement to put pension liabilities on the balance sheet has revealed the seriousness of this crisis. When the retiree medical liabilities are added to next year’s CAFRs, California will have an Unrestricted Net Deficit of a quarter-trillion dollars! Stay tuned for next year’s state UNP analysis.

Other observations should tell the Department of Finance in Sacramento to take a hard look at Tennessee and see what they’re doing, as it moved up four places, to #5, as one of only 10 states with a positive UNP. Oregon also moved up four places, to #16. I would give it to the fact that it has a Chief Operating Officer overseeing its various departments (see http://district37.cssrc.us/content/senate-bill-1297-state-chief-operating-officer. California’s two biggest competitors, Florida and Texas, continue to hold strong positions, respectively at #15 and #23.

The big story is Colorado, at #33. It dropped 12 places! Maybe legalizing cannabis is not the financial Rocky Mountain High that everyone hoped it would be? But, the real states to watch are New Jersey, Connecticut, Illinois, Massachusetts, and Kentucky. The Urestricted Net Deficits for these five states are in the stratosphere.

There is a big spread between #41, Delaware, and #42, California. So, I don’t expect another move up in positions for our state in some time. Let’s hope that Governor Brown can hold onto #42 when the June 30, 2018, CAFR, the last full year of his term, is released next March or April. But, with $91.5 billion in retiree medical liabilities currently off of the books (a decision made by State Controller Betty Yee), it’s hard for this licensed, but inactive, CPA and CFP to be optimistic (see MOORLACH UPDATE — Better Shape — February 1, 2018).

With these unpleasant metrics, wouldn’t you think that states like California and New Jersey would shed programs, instead of adding them? Do they need to add another department, thus creating the need to hire more employees? And being encumbered with the need to provide generous salaries and defined benefit pension plans? How ironic, when a defined benefit retirement plan exceeds that of CalSavers by a long shot.

Then there are the initial costs of starting up an investment scheme that will eventually be funded from the expense ratio of the funds under management? Also, with no wherewithal for the state to provide self-insurance, is California risking having the liability exposure that may come when plan participants cry foul because actual net investment returns do not match that of industry benchmarks?

This is what I’m sayin’ in the third piece below from the Los Angeles Daily News, the OC Register, and the San Gabriel Valley Tribune (MOORLACH UPDATE — CalSaver Imposition — March 26, 2018).

This state lawmaker gets government finance

Sheila Weinberg
https://www.truthinaccounting.org/news/detail/this-state-lawmaker-gets-government-finance

Kudos to California state Sen. John Moorlach for his understanding of government finances and how to determine the true fiscal condition of a government. As a certified public accountant and financial planner, he used his experience and expertise to rank California’s 482 cities according to their financial soundness.

I am very impressed to see the senator use “unrestricted net position” as his measurement. He found 216 California cities had a positive unrestricted net position, or the amount of funds available to pay for future government operations. The senator found 264 cities had a negative net position, which represents the amount of bills (liabilities) that elected officials have pushed onto future taxpayers.

Moorlach’s study correctly notes that retiree health care liabilities are not included in the unrestricted net position, so the number is overstated. Fortunately, government financial reports for fiscal years after June 15, 2018, will be required to report these liabilities.

I urge every taxpayer and elected official across the country to read Moorlach’s report, especially the second page, where he provides readers with a step-by-step guide on how to find a government’s unrestricted net position.

Since 2009, Truth in Accounting has used unrestricted net position as the basis* for calculating our “money needed to pay bills” measure in each state, which is then used to calculate a state or local government’s Taxpayer BurdenTM. The ranking of each state’s Taxpayer Burden can be found in our Financial State of the States report. In January, we issued our latest Financial State of the Cities report using the same methodology to calculate the money needed to pay bills and Taxpayer Burden for the 75 most populated U.S. cities.

To see where your state and city ranks, along with detailed financial information, go to Truth in Accounting’s sister website statedatalab.org

If you don’t see your local government, then I urge you to follow these steps so you can find your government’s unrestricted net position:

  • Google your government’s name and “comprehensive annual financial report”
  • Find the “statement of net position” (usually somewhere around pg. 35 on the PDF document)
  • Look for the “net position” section
  • Find the row for “unrestricted”

Remember, a negative number is not good.

*When necessary, we have adjusted for each government’s unreported pension and retiree health care liabilities.

Rank State Population UNP Per Capita Year 2016
1 Alaska 739,795 $ 14,558,125,000 $ 19,679 1
2 North Dakota 755,393 $ 5,989,501,438 $ 7,929 3
3 Wyoming 579,315 $ 4,518,975,575 $ 7,801 2
4 Idaho 1,716,943 $ 1,146,468,000 $ 668 4
5 Tennessee 6,715,984 $ 2,736,079,000 $ 407 9
6 Oklahoma 3,930,864 $ 1,484,206,000 $ 378 8
7 South Dakota 869,666 $ 267,296,000 $ 307 7
8 Nebraska 1,920,076 $ 550,525,000 $ 287 5
9 Utah 3,101,833 $ 819,880,000 $ 264 6
10 North Carolina 10,273,419 $ 1,822,821,000 $ 177 10
11 New Mexico 2,088,070 $ (326,978,000) $ (157) 2016 11
12 Iowa 3,145,711 $ (999,603,000) $ (318) 12
13 Washington 7,405,743 $ (3,376,575,000) $ (456) 13
14 Georgia 10,429,379 $ (5,210,957,000) $ (500) 16
15 Florida 20,984,400 $ (12,401,193,000) $ (591) 17
16 Oregon 4,142,776 $ (2,482,259,000) $ (599) 20
17 Nevada 2,998,039 $ (1,888,144,000) $ (630) 2016 18
18 Virginia 8,470,020 $ (5,344,284,000) $ (631) 19
19 South Carolina 5,024,369 $ (3,497,642,000) $ (696) 14
20 Arkansas 3,004,279 $ (2,160,882,000) $ (719) 15
21 Arizona 7,016,270 $ (5,341,848,000) $ (761) 24
22 Indiana 6,666,818 $ (5,177,896,000) $ (777) 2016 25
23 Texas 28,304,596 $ (25,170,339,000) $ (889) 22
24 Minnesota 5,576,606 $ (5,029,153,000) $ (902) 28
25 Ohio 11,658,609 $ (10,571,925,000) $ (907) 26
26 Montana 1,050,493 $ (971,795,000) $ (925) 23
27 Missouri 6,113,532 $ (5,787,207,000) $ (947) 27
28 Michigan 9,962,311 $ (9,848,197,000) $ (989) 30
29 Kansas 2,913,123 $ (3,205,914,000) $ (1,101) 29
30 New Hampshire 1,342,795 $ (1,683,141,000) $ (1,253) 31
31 Maine 1,335,907 $ (1,885,023,000) $ (1,411) 32
32 Wisconsin 5,795,483 $ (8,361,432,000) $ (1,443) 34
33 Colorado 5,607,154 $ (8,359,538,000) $ (1,491) 21
34 Alabama 4,874,747 $ (7,578,278,000) $ (1,555) 2016 35
35 Pennsylvania 12,805,537 $ (21,275,848,000) $ (1,661) 33
36 Mississippi 2,984,100 $ (6,058,425,000) $ (2,030) 36
37 New York 19,849,399 $ (45,599,000,000) $ (2,297) 47
38 West Virginia 1,815,857 $ (4,455,964,000) $ (2,454) 37
39 Louisiana 4,684,333 $ (11,949,852,000) $ (2,551) 38
40 Vermont 623,657 $ (2,263,168,022) $ (3,629) 40
41 Delaware 961,939 $ (3,622,572,000) $ (3,766) 39
42 California 39,536,653 $(169,499,683,000) $ (4,287) 43
43 Rhode Island 1,059,639 $ (4,581,514,000) $ (4,324) 41
44 Maryland 6,052,177 $ (27,010,946,000) $ (4,463) 42
45 Hawaii 1,427,538 $ (7,996,567,000) $ (5,602) 44
46 Kentucky 4,454,189 $ (40,157,358,000) $ (9,016) 45
47 Massachusetts 6,859,819 $ (63,992,915,000) $ (9,329) 46
48 Illinois 12,802,023 $(161,239,415,000) $ (12,595) 48
49 Connecticut 3,588,184 $ (52,826,131,000) $ (14,722) 49
50 New Jersey 9,005,644 $(136,955,085,569) $ (15,208) 2016 50

OPINION

John Chiang joins race to

California insolvency with

CalSavers

By JOHN MOORLACH |

https://www.dailynews.com/2018/03/31/john-chiang-joins-race-to-california-insolvency-with-calsavers/

https://www.ocregister.com/2018/03/31/john-chiang-joins-race-to-california-insolvency-with-calsavers/

https://www.sgvtribune.com/2018/03/31/john-chiang-joins-race-to-california-insolvency-with-calsavers/

Before California and other states start new programs, wouldn’t it be wise if they first got their own financial houses in order? A case in point is the new California program originally called Secure Choice, even though it was neither secure nor a choice, but now is called CalSavers. It’s a state program to get low- and middle-income Californians to invest in a state-run defined contribution pension plan.

Similar programs have been enacted in the states of Illinois, New Jersey, Maryland, Oregon and Washington. And the list may be growing. According to a recent Associated Press report on the plans, “New York is among a growing number of states considering legislation to create government-sponsored payroll-deduction retirement programs for small businesses.”

The reason behind the programs, the article adds, is because “financial planners say” the plans “could be a relatively painless way to help Americans reverse a dismal record of saving for their golden years.”

State Treasurer John Chiang, in his March 17 op-ed, “CalSavers gives Californians a chance at a more secure retirement,” defended the program as part of his bid to become governor. This claim is not exactly true. It only provides a component of one’s total retirement planning efforts. But, why should the state insert itself?

As the only certified public accountant in the state Legislature and a financial planner, I can tell you that withholding programs can be provided for employees without state government involvement.

For fun, let’s look at the finances of all the state governments involved so far. Each one has a significant per capita unrestricted net deficit: New Jersey ($15,208), Illinois ($12,525), Maryland ($4,463), California ($4,263), New York ($2,297), Oregon ($599), Washington ($456).

It’s a classic case of, “Do as I say, not as I do.” Would you want a DMV-type department managing a portion of your nest egg? And let’s hope your funds are not used to prop up these fiscally challenged states.

Chiang attacked an earlier op-ed by Jon Coupal, the president of the Howard Jarvis Taxpayers Association, because “Coupal erroneously asserts that the program poses a financial burden to taxpayers. The fact is CalSavers is a voluntary savings plan for private-sector California workers that incurs no cost or liability to taxpayers or participating employers — none!”

This is also not exactly true. The initial subsidization of this program will be paid for out of the investment earnings of the participants. Translated: expect lower net yields.

Chiang also mentions CalSavers “is being hailed as the most significant expansion of retirement security since the passage of Social Security in 1935.” But the 2017 Annual Report of the Social Security Board of Trustees calculated the fund suffers a whopping $12.5 trillion unfunded liability — that’s with a “t.” Explain how this was a bragging point.

Participants can also expect social investing strategies once CalSavers gets up and going. Expect severe restrictions on profitable investments, as was already seen with CalPERS, which lost $3 billion since its divested from tobacco stocks in 2000. Then it divested from coal companies, which are booming. Now Chiang is trying to get CalPERS to divest from gun companies.

California workers already enjoy many options to invest on their own. If Chiang wants to help our citizens plan better for retirement, why did he oppose President Trump’s middle-class tax cuts, which leave people more to invest for their futures? And will he sign the initiative petition to repeal last year’s gas-tax increase, which annually robs $5.5 billion from Californians, money they could have put into retirement plans?

Life is not simple or easy. You need to impose self-discipline and save for your own retirement. And you need to manage your personal finances in a smart manner, based on your particular needs and constraints.

An expensive, government-run savings plan does not fit in this strategy. Sacramento, save us the shallow platitudes and stay out of our pockets, please.

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

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