MOORLACH UPDATE — State Budget Torpedo — January 1, 2019

Happy New Year!

On January 10th, California’s new Governor, Gavin Newsom, will be release his first budget. It may coincide with the instigation of a teachers’ strike for the Los Angeles Unified School District.

The outgoing Governor attempted to address retiree medical liabilities at the state level. However, he was bagged by the public employee unions. They agreed to a 4 percent withholding, after receiving a 9 percent pay increase. Can you say, “higher unfunded pension liabilities?” Gov. Brown should have had the state pay the 4 percent directly and only given a 5 percent raise. The overall current and future costs would have been much lower and the net take home pay for the employees would have been about the same.

I helped negotiate a similar strategy in Orange County back in 2006. Along with a number of other critical changes, Orange County was able to reduce its unfunded retiree medical from $1.4 billion to $430 million and reduced the annual required contribution by $100 million per year. This savings during my terms as Supervisor virtually replaced the loss sustained by the investment pool implosion under former Treasurer-Tax Collector Robert Citron’s watch back in 1994.

A similar 71 percent reduction in the unfunded retiree medical liability for LAUSD would result in a $10.65 billion reduction! If Gov. Brown would have negotiated a similar deal, the state’s savings would have been nearly $65 billion!

The LAUSD Board of Trustees has to focus on total compensation. Teachers receive attractive medical plans, generous defined benefit plans and competitive salaries. But, you can’t have all three. Something has to give. And, it will either happen in reduced wages or layoffs of the most recently hired teachers. If the new hires are terminated, future potential teachers will be discouraged from entering this industry. Why invest in five years of college when there is no job security? Such is the joys of the unions keeping mediocre teachers with longevity and eating their young.

It’s no wonder parents are clamoring for more charter schools, where the teachers’ union has no influence. I could go on (see MOORLACH UPDATE — $15 Billion Obligation — December 27, 2018).

The Los Angeles Daily News and the Pasadena Star-News at least provide sound counsel in their editorial below. Otherwise, Gov. Gavin Newsom will see his first budget torpedoed by a significant financial assist to bail out California’s fiscally distressed network of school districts.


A UTLA strike will accomplish nothing. LAUSD, UTLA should compromise

By opinion |

On Jan. 10, the Los Angeles Unified School District could be hit with a teacher strike due to a failure of the district and the teachers’ union to reach a deal in contract negotiations.

A strike wouldn’t be in the best interests of anyone, and we encourage both sides to continue working toward a solution rooted in reality.

The reality is that the LAUSD’s finances are unsustainable as they currently stand. In fact, the district is on such poor fiscal footing that there’s a real possibility the district could be taken over by the state.

This summer, the L.A. Unified Advisory Task Force warned that the district’s budget “forecasts show it will have exhausted its reserve fund balance by 2020-21, will have a budget deficit of $400 million in 2020-21, and therefore be insolvent.”

The Reason Foundation has similarly noted that “in four years the combination of pension costs, health and welfare costs, and special education costs are projected to take up 57.5 percent of unrestricted general fund revenue … before the district spends a single dollar to run a regular school program.”

Most recently, state Sen. John Moorlach has warned that the district’s unrestricted net deficits have risen from $10.5 billion in 2016 to $19.6 billion in 2018.

Worse, none of these findings are all that surprising. In 2015, the Independent Financial Review Panel warned that the district faced “a significant structural deficit in its operating budget that threatens the District’s long-term financial viability.”

Fast forward to today: The district, for as bad a position as it’s in, is still offering LAUSD teachers a raise of 6 percent. But the United Teachers Los Angeles isn’t satisfied and has instead set a strike date of Jan. 10.

It’s not clear what a strike would accomplish beyond showing that the union is willing to disrupt the education of Los Angeles students.

In a discussion with members of our editorial board, the UTLA largely downplayed the fiscal realities of the district and instead argued for limits on charter schools and tax increases.

While those are all topics worthy of debate and discussion, we encourage UTLA and LAUSD to resume talks grounded in facts.


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