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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