MOORLACH UPDATE — Open Transparency — March 8, 2019

I try not to be repetitious, but the topics below deserve a little bit of my attention. To keep it short, I’m not including any recent pieces on my Autobahn bill.

The first piece below, from California Globe, provides a supportive commentary on my Open Financial Statement Act, Senate Bill 598 ((see MOORLACH UPDATE — SB 496 and SB 598 — March 6, 2019).

The second piece, in the Red Bluff Daily News, needs a small explanation. I do try to provide something special and different under appropriate circumstances. The “noogie” was to a non-Senate employee, we were laughing at the time of the photo session, and calling it in to the Senate hotline may have been overkill. I also thought the investigation was brief and disappointing, and should not have been a high cost effort on behalf of the outside legal firm. Those familiar with me know that I have a sense of humor and an incredible wife of nearly 39 years. Getting caught up in this net seems a little unnecessary and those who have discussed it with me have been upset with the silliness of it all.

The third piece, from FOX News, covers the accrued vacation costs addressed in yesterday’s UPDATE (see MOORLACH UPDATE — Accrued Vacation Time — March 7, 2019). I responded to the reporter while waiting for a flight in the Sacramento Airport. I should have been a little more detailed, but I was rushed. During the Great Recession, the cash flow constraints made it very difficult to pay off this liability when County employees retired. Having to lay off employees to pay these large sums was gut-wrenching and reflected priorities that were difficult to explain. But, these were bargained for prior to my coming on the Board of Supervisors. End of story.

California’s Antiquated Legislature

Can Update State Technologies

In the birthplace of high tech, government financial statements exist only in PDF format

By Edward Ring

Last year, California’s state Senate and Assembly passed 1,217 pieces of legislation. Governor Brown signed 1,016 of them into law, and most took effect January 1st. Included were predictable acts of liberal zealotry – sanctuary for the undocumented, gender equity on corporate boards, gun control, “me-too” inspired laws, a mandate to move California to 100% “clean” energy by 2045, laws to protect government unions, reduce mandatory criminal punishment, and, of course, a ban on plastic straws.

To be fair, most of these issues aren’t black and white. But what’s notable is a complete lack of legislation that might reflect some kind of ideological balance. Where were the laws to rebuild our highways, fast-track the construction of the Sites Reservoir, open land for housing development, license new nuclear power plants, or permit drilling for natural gas? As Tony Soprano would say, “fuggedaboutit!”

There’s one law pending in this year’s legislative session, however, that could do a world of good. It’s probably the best new proposed law that nobody’s ever heard of. It’s utterly bipartisan, and wouldn’t cost much at all to implement.

That law is SB 598, the Open Financial Statements Act, sponsored by Senator John Moorlach (R-Costa Mesa). It’s fitting that Senator Moorlach is the author of this bill, because he is the only certified public accountant serving in a state legislature, which is quite likely the most financially illiterate group of state legislators in America.

This isn’t idle speculation. A recent analysis by the California Policy Center analyzed the 2019-2020 class of senators and assemblymen in California’s state legislature, examining each legislator’s background. It found that 75 percent of the Democratic legislators had no experience in private business. Since the Democrats control more than 75 percent of the seats in California’s legislature, that means that as a collective body, these legislators do not really understand what it takes to run a business – or read a financial statement.

This economic idiocy is evident in the laws California’s legislature has passed, or is contemplating. Apart from their ideological uniformity, some of them have epic financial repercussions. They approved retroactive pension benefit increases during a stock market bubble, unaware of the slow motion catastrophe they unleashed as markets returned to reality. They approved high-speed rail, blithe to the project’s failure to pass even the most rudimentary cost/benefit analysis. They’ve got their eyes on universal health care and free pre-school, apparently unaware of the stupefying cost. Examples of Democratic innumeracy are endless.

When the legislators don’t have the training to understand the economic and financial impact of the laws they pass, somebody else has to do it for them. In-house, that is legislative staff and the massive state bureaucracy, and on the outside, journalists, watchdogs, activists, credit agencies, bond underwriters, and investors. But unfortunately, the information they get to work with is trapped in obsolete 20th century formats.

This is where SB 598 ascends from accounting geekville and represents a real opportunity for reform-minded, financially responsible Californians to take back their state. Today, while financial statements for California’s state and local agencies are available online, they exist only in PDF format. These reports are printed on paper, and the “electronic copies” that are saved and uploaded are little more than image files. SB 598 will take these online reports into the 21st century, and would require the State Controller to post all public agency audit reports on their website.

Applying 21st Century Technology to Transparency Mandates

When an online financial statement is just an image file, it is opaque. That is, if you want to take the numbers reported on that image and do any sort of analysis, you have to manually enter all the numbers over again onto a spreadsheet. As it is, every year, California’s various government agencies upload annual financial statements in PDF format for review by, for example, credit agencies. Meanwhile, similar data is required by the state controller, but these reports are hand entered into an online system. Local governments have trouble keeping their respective PDF and controller reports in sync, giving rise to data errors. SB 598 solves this problem.

What SB 598 will require is for all of California’s state and local government agencies to use XBRL, or “Extensible Business Reporting Language.” This proven technology is similar to HTML, and like HTML, is used to create web pages. But XBRL web pages are formatted so that entire tables of numbers can be copied and pasted in Excel spreadsheets. They are also “machine readable,” which means that data mining programs can automatically extract all of the numerical information on them, pouring it into a database, or onto a spreadsheet.

In the private sector, the Securities and Exchange Commission already requires publicly traded corporations to use XBRL on their posted quarterly and annual financial statements. Among government entities, XBRL has already been adopted by the State of Florida, and is being adopted in Utah. Insofar as California is the birthplace of high technology, and remains its epicenter, it should be a bipartisan slam-dunk for California’s legislators to adopt XBRL here.

The benefits of having XBRL are many, and deserve explanation, because it’s easy to acknowledge and promptly forget about something that, while transformative, flies way under the radar. The challenge of properly analyzing and exposing many of California’s most serious fiscal challenges, using today’s reports, is nearly insurmountable. Examples abound.

California has 83 independent pension systems, nearly all of them woefully underfunded and nearly all of them planning to roughly double the amount they’re requiring their client employers to pay them. How will this affect California’s cities, counties, special districts and state agencies? What is the collective impact of these payment increases on California’s taxpayers? With XBRL, an analyst can unleash an automated program that will download the financial statements of all 83 pension systems, producing a consolidated report showing the exact financial condition of those systems if they were a single entity. With this information, it would be a simple matter to assess and report, among other things, the total unfunded liability, and the total required payments.

There are very immediate financial challenges facing Californians that would be far easier to understand and cope with if XBRL were implemented. Two timely examples are the Los Angeles Unified School District, and one of its counterparts up north, the Oakland Unified School District. In both cases, these school districts are in deep financial trouble. Despite these difficulties, their unions have successfully negotiated increases in pay and headcount. LAUSD confronts $14 billion in debt for retirement healthcare, and $7 billion in debt for unfunded pensions. Their net position on their balance sheet is a negative $7 billion. If it were easier to collect these financial facts, more people would look them up, and maybe LAUSD would be cutting non-teaching positions and selling off underutilized school properties, instead of handing out raises and hiring new staff.

Finance is the analytical glue that makes it possible to understand the viability of public policies. It is the indispensable language that describes why a public endeavor succeeds or fails. By adopting XBRL, California’s state and local governments will make it possible for more people, including people who need to know, able to speak this language. As Senator Moorlach has said with respect to SB 589, “if you can’t measure it, you can’t manage it.”

California spent $1.8 million on legal costs for sexual harassment investigations

At least nine legislators were named in the investigations in 2018


The California Legislature racked up more than $1.8 million in legal costs from sexual harassment investigations during 2018 and the first month of this year when at least nine current or former lawmakers faced allegations of misconduct, according to records obtained by The Associated Press.

The Senate spent $1.26 million and the Assembly $571,000, according to the documents provided under the Legislative Open Records Act.

Neither chamber provided specifics on how many investigations the money paid for nor how exactly it was spent, citing attorney-client privilege and other exemptions in the public records act.

But both chambers previously have disclosed hiring outside attorneys during that time to investigate five current or former Assembly members and four current or former senators.

Their behavior ranged from using vulgar language and giving uncomfortable hugs and a “noogie,” to forcibly kissing a staff member and, in one case, masturbating in front of a lobbyist.

The spending occurred after accusations of widespread harassment at the Capitol surfaced in October 2017 as the #MeToo movement was roiling Hollywood and major corporations.

Four California lawmakers and multiple staffers eventually resigned, and the Legislature has since revamped its policies for reporting and investigating claims of misbehavior.

“It’s not the kind of place you want your taxpayer dollars being used,” said Assemblywoman Laura Friedman, a Democrat representing part of Los Angeles and surrounding communities who led the committee to change harassment policies. “The goal of our new policies is to try to intervene much earlier before we get to a point where you need to have a very large investigation.”

A new “Workplace Conduct Unit” debuted in February to look into all allegations of harassment and discrimination, sexual or otherwise, based on someone’s race, gender or other protected classes. The findings of major investigations will then go to a panel of outside experts who will evaluate them and recommend action to the Legislature.

Lawmakers approved $1.5 million to get the four-person office up and running last year, and its proposed annual budget is $1.7 million. Some investigations could still be sent to outside lawyers, but most complaints will be handled internally, said Julia Johnson, the head of the unit.

“We expect that as this new process moves forward, it will be both effective for employees in stopping harassment and efficient for taxpayers in how it achieves that critical goal,” Senate President Pro Tem Toni Atkins said in an emailed statement.

Assembly Speaker Anthony Rendon said his priority is for staff to feel safe and to create a more respectful, diverse and civil culture.

“For that to happen, we have to investigate workplace misconduct thoroughly and consistently. I will not put a price on the safety of our employees,” he said in an emailed statement.

In 2018, the Legislature went regularly to outside lawyers to look into complaints. Firms hired by the Assembly in 2018 were: Littler Mendelson P.C., Stoel Rives LLP, and Van Dermyden Maddux Investigations. The Senate, meanwhile, hired the Law Offices of Amy Oppenheimer initially and later retained Van Dermyden Maddux and Gibson, Dunn & Crutcher LLP to handle all investigations.

The decision to put two firms on retainer came as the Senate was taking heat over allegations former Sen. Tony Mendoza harassed multiple young women, including offering an underage employee alcohol and inviting another to his home. The firms are no longer handling sexual harassment investigations for the Senate, said Lizelda Lopez, Atkins’ spokeswoman.

Former Senate president Kevin de Leon, who was in charge when the firms were put on retainer, said in a text message that employees’ safety was the top priority and that the outside firms were brought in to ensure complaints were “aggressively investigated, free of any political influence.”

Neither chamber discloses information about allegations that are not substantiated, making it impossible to know the number of investigations actually completed.

The Senate also paid out a $350,000 settlement to an employee who said the chamber failed to accommodate her needs after she alleged an Assembly employee raped her; the Assembly said it paid out no settlements during that time.

The Senate did not respond to questions about whether that $350,000 was part of its legal costs. Republican Assemblyman Steven Choi has introduced a bill that would ban the use of taxpayer money on settlements.

Beyond legal costs, the Assembly and Senate together spent $16,800 hiring an outside consulting firm to conduct a “culture survey” in 2018 to assess whether staff members felt respected and comfortable reporting incidents of harassment to their superiors, among other things.

The money went to a Florida-based firm called TalentKeepers. The company charged $5 for each employee taking the survey, a total of 2,661 people, according to an invoice.

Kim Nalder, a professor of political science at California State University, Sacramento, surmised the public’s reaction to all the spending will vary depending on their feelings about the issues raised by #MeToo. Nearly a year-and-a-half after the movement seized the national spotlight, America still is experiencing a cultural awakening about what behavior now is considered unacceptable, she said.

“Californians who are in the ‘zero tolerance’ camp are going to be horrified that we’re paying to investigate this many examples of gross misbehavior,” Nalder said. “And I suspect some older people will feel like it’s a reflection of a sensitivity that they may find overblown.”

A list of the legislators and allegations:

— Former Assemblyman Matt Dababneh: Investigators substantiated allegations he followed a lobbyist into a bathroom and began masturbating in front of her at an event in Las Vegas in 2016. The Democrat resigned but denies the allegations and sued the lobbyist for defamation.

— Assemblywoman Cristina Garcia: She was cleared of allegations she groped a former legislative staff member in 2014 but investigators found she used vulgar language in violation of the chamber’s sexual harassment policies. The Democrat won re-election in 2018.

— Assemblyman Devon Mathis: He was reprimanded for making sexual comments about other lawmakers, described by investigators as “locker room talk.” The Republican won re-election in 2018.

— Former Assemblyman Raul Bocanegra: Investigators say he harassed several women while serving as an Assembly staff member about a decade ago. In one case, he put a subordinate’s bracelet down his pants and asked her to retrieve it. The Democrat resigned in late 2017 but maintained his innocence.

— Former Assemblyman Sebastian Ridley-Thomas: Investigators found he likely forcibly kissed a woman. The Democrat denies the allegations but resigned in late 2017, citing health reasons.

— Former Sen. Tony Mendoza: Investigators say he likely engaged in unwanted “flirtatious or sexually suggestive” behavior with six women, including four subordinates, a lobbyist and a young woman in a fellowship program. The behavior included offering a 19-year-old intern alcohol in a hotel suite at a Democratic Party event. The Democrat resigned in February 2018 but denied wrongdoing.

— Sen. Bob Hertzberg: Investigators found he gave people hugs that made them uncomfortable but concluded it wasn’t meant to be sexual. The Democrat stayed in office.

Sen. John Moorlach: Investigators say he gave a woman a “noogie,” but did not intend it to be sexual. The Republican still is in office.

— Former Sen. Joel Anderson: Investigators say he threatened to slap a lobbyist at a bar near the Capitol, which he denied, and rubbed her shoulders. Anderson, a Republican, was termed out of office in 2018 and lost a bid for a seat on a state tax board.

Banked time-off pay for California workers creates huge taxpayer liability

By Andrew Craft | Fox News

In California, it pays to hold onto your allotted vacation days, at least if you’re a state government worker.

A Los Angeles Times study of payroll data from the state controller’s office has found that the Golden State paid nearly $300 million for banked time off in 2018.

The controller’s office referred Fox News to the California Department of Human Resources, which did not immediately respond to a request for comment.

The data included most agencies and departments, excluding legislative employees and workers at public universities.

One recently retired employee, Bijan Sartipi, who worked as a transportation engineer, received a payout of $405,000 for time off he never used, according to the news organization’s research.

The state does have a cap on vacation accrual but enforcement is lax, leaving state workers to retire with massive compensatory payouts. California mandates vacation balances for most employees be capped at 640 hours.

The state is obligated to make the payment, inevitably leaving lawmakers to cut programs from other departments to balance the budget and offset the costs of that vacation hoarding.

“You wait for the guy to retire and then you send him a $300,000 check. … In a budget surplus mode like right now it’s great, but if you’re in a recession it sucks,” said Republican state Sen. John Moorlach.

“It is just so onerous, and this is not just at the state level, this is at the county and city level, too.”

Moorlach said the issue can be addressed starting with Gov. Gavin Newsom, a Democrat.

“At least Governor [Jerry] Brown tried to give them the opportunity to try and pay it down; it seems to me it has to start at the bargaining table,” he said.

The study found state workers had $3.5 billion in unused leave as of 2017, creating a massive unfunded liability for the state.

The analysis also found that vacation payouts can far surpass annual salaries. For example, if an employee cashes out stored-up leave, California pays them for the hours accrued. In addition, the state projects how much additional time he or she would have earned for actually taking those days off.

Plus, state labor code requires compensation for unused days based on the employee’s final pay rate, so the actual cost of each vacation hour increases over time.

Moorlach is pessimistic that there is a quick and simple remedy. He says it would be tough to negotiate an even harsher cap on unused vacation hours with government employee unions.

“Can we fix this?” he asked. “Probably not.”


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