MOORLACH UPDATE — Shining a Light — May 8, 2019

CBS Channel 13 News provided another theatrical news update, this time on the State Auditor’s report released yesterday, disclosing yet another Caltrans employee’s financial abuse (also see MOORLACH UPDATE — SB 319 High Speed Road — February 19, 2019). It’s the first piece below.

The East Bay Express noted my Senate Floor speech from Monday afternoon on SB 293 (Skinner) in the second piece below. I’m really concerned about the city of Oakland and I can understand why the Raiders want to relocate to Las Vegas. The city is in awful shape. So, I mentioned my 2018 study of cities, and Oakland placed #479 out of 482 cities, just about dead last (see MOORLACH UPDATE — City CAFR Rankings – Vol. 1 – February 7, 2018 and MOORLACH UPDATE — Get Mad, Get Motivated — October 19, 2018 ). And, we used Oakland’s June 30, 2016 CAFR, which reflected an unrestricted net deficit of $1.79 billion!

The following year’s CAFR reflected an even larger unrestricted net deficit of $1.79 billion! But the June 30, 2018 CAFR shows it’s $2.4 billion!! That’s what adding $836 million in Other Post Employment Benefits (OPEBs) will do to a balance sheet. And this is a city with a population of only 426,074.

Oakland Unified is also in lousy shape (see MOORLACH UPDATE — Oakland Unified School District — February 21). So I also mentioned its alarming stats in my remarks.

I laid off when SB 293 was presented in Senate Governance and Finance. On the Floor I stated that I would vote for the allowing of the creation of an Infrastructure Financing District, a redevelopment agency-like vehicle, even though it excludes voter involvement on debt issuances.

I visited Coors Field in Denver during its inaugural year and I’ve enjoyed a game at Petco Field in downtown San Diego. Oakland definitely needs a fiscal shot in the arm and an economic boost to improve its dismal balance sheet. I’m just not sure if moving a baseball stadium will do it, but it’s better than losing its last professional sports franchise. I wish this effort all the best, all the while biting my lip.

The third piece is from City Journal and expands on my SB 319 Autobahn bill.

25th Anniversary Look Back

On Sunday, May 8, 1994, Chris Knap of the OC Register was back with “Treasurer says gains offset losses — Government: County official Robert Citron explains his investment actions.” Can you imagine? An article to defend losses incurred from collateral calls? Here are the opening and two additional paragraphs:

The late-winter jump in interest rates spurred Orange County Treasurer Robert L. Citron to cash in $200 million in devalued securities, costing the county investment pool $8.46 million, transaction records and interviews show.

Citron said the losses were balanced by the sale of $275 million in high-performing securities, which brought the county $8.97 million in profit. “We came out with a net gain, overall, and prepared ourselves to re-enter the market in 30 to 45 days to obtain investments at higher interest yields,” Citron said. “The trading we did was not at all unusual.”

Experts in municipal finance contacted by The Orange County Register said a loss is sometimes necessary when an investment turns sour. But an investor for the state of California who takes a more conservative stance than Citron said he would not want to have to explain such a loss to the cities and counties that deposit with him.

“Losses can cause a lot of questions and concerns,” said William Sherwood, chief of investments for the $26 billion pool run by the state treasurer. “It’s something that we quite frankly don’t like to do. We buy and hold (until maturity).”

Citron, Orange County’s elected treasurer for 23 years, has been greatly praised in the past few years for earning returns as high as 10 percent on his $8 billion in deposits _ generally twice the returns of the state pool.

But this year, he is facing an election challenge from Costa Mesa accountant John M. Moorlach and has had to defend his strategies, which Moorlach has called too risky.

On May 12th, I sent Chris Knap and other reporters covering the campaign a letter with a summary of the portfolio as of March 31, 1994, and number of questions that they should consider pursuing for accurate answers. The portfolio was $21.7 billion, with $14.4 of it borrowed!

The first question was rather basic.

Investors understand that increased risks are usually associated with increased returns. Orange County’s Pool can boast that over the last few years its returns have out-paced most other Municipal Funds. Has this been due to taking on more risks than other funds?

Auditor: State Workers Caught

Behaving Badly

By Steve Large

A California State Auditor report is shining light on some state workers caught behaving badly on the job.

The audit is titled “Investigations of Improper Activities by State Agencies and Employees.” It stems from an investigation into hundreds of allegations that state workers wasted taxpayer money while on the job.

One of the auditor’s biggest findings — a Caltrans employee who got a job in Sacramento, but never moved here. Instead, she flew here to work and had taxpayers pick up her tab.

According to the state auditor, this state employee gave herself quiet the travel budget, racking up thousands of dollars in airfare.

She also got rental cars paid for, charged the state for mileage during her time in Sacramento, and was reimbursed for meals and incidentals too.

The audit shows Caltrans approved the receipts she submitted totaling more than $40,000 for her commute to work spanning from February 2016 to March 2018.

“It’s very disconcerting,” State Senator John Moorlach said.

Moorlach has been a critic of Caltrans oversight for years and calls the results of this audit part of a pattern.

“I get frustrated with the lack of good internal controls and management not paying attention, or maybe winking, like okay, let’s pay for her transportation and her commuting costs including a rental car, and just hopes no one catches it,” Moorlach said.

In 2015 a state audit found a Caltrans engineer golfing instead of working on 55 of his scheduled days. In 2016 another state audit found Caltrans spending habits open the door to fraud.

Responding to the recent audit, a Caltrans spokesperson Matt Rocco issued a statement reading in part, “Caltrans is updating its guidelines and training to make sure that travel is assigned appropriately. We are also reviewing on a monthly basis those employees on travel status.”

The state auditor has asked Caltrans to determine if they can collect any of the money taxpayers paid for the state worker’s travel expenses. She is now retired.

Port of Oakland to Approve Term Sheet With A’s

Plus more cannabis for Hayward, and Swalwell qualifies for debates

By Steven Tavares


Howard Terminal stadium plan clears another hurdle.

Howard Terminal stadium plan clears another hurdle.

The Port of Oakland Board and Oakland Athletics are set to sign an exclusive four-year term sheet to lease the Howard Terminal waterfront property to the team for construction of a new waterfront ballpark. An item on the term sheet is scheduled to come before the Port of Oakland Board of Commissioners on May 13.

The A’s will pay the Port $100,000 for the right to continue negotiations over the purchase of the 50-acre property located west of Jack London Square. The team hopes to build a 35,000-seat ballpark on the site that also includes 3,000 housing units and retail. Under terms of the agreement, the A’s would pay an additional $150,000 to the Port if a deal is not consummated after one year; $200,000 after two years; and $250,000 after three years.

The framework for the term sheet sets the annual rent price for the property at $3.8 million for the first 20 years. The proposal reserves the Port’s authority to approve any final project for Howard Terminal until the A’s have fully navigated the long list of land-use hurdles associated with building on the bay. It also requires the A’s to offer a comprehensive traffic plan to the Port as part of the permitting process.

Meanwhile, legislation that would help the City of Oakland finance infrastructure and transportation projects for the ballpark was approved Monday by the State Senate on a 34-0 vote. The bill would allow Oakland to create an infrastructure financing district.

“Any financing that emanates from the district would not be used for the actual stadium itself — that is going to be privately financed — but rather for the other transportation and other infrastructure that may be needed at the site,” Skinner told her Senate colleagues.

State Sen. John Moorlach, a Republican from Costa Mesa, said he struggled with giving support to the plan at a time when the finances of Oakland’s school district are so poor.

“I get a little nervous about certain transactions and I’ve looked pretty closely at the City of Oakland,” said Moorlach, who labeled the bill a “redevelopment-like vehicle.” He then read out loud the Oakland Unified School District’s dismal financial record. But Moorlach’s then offered his support for the bill with a caveat. “Oakland needs a shot in the arm and economic boost to its distressful balance sheet. I’m not sure moving a baseball stadium will do the trick, but I sure hope it does. If it doesn’t, I sure apologize in advance for encouraging an aye vote on SB 293.”

Skinner assured Moorlach the bill does not take away property tax increment that would otherwise go to Oakland schools, similar to how redevelopment agencies once operated in the state.

The bill heads to the Assembly for debate.


High-Speed Alternatives to High-

Speed Rail

California needs to shelve its boondoggle and consider alternative proposals from the private market.

Kerry Jackson

On the campaign trail, California governor Gavin Newsom expressed support for the state’s high-speed rail project, but he’s been more reticent since taking office earlier this year. In February, he proposed to cut back on the plan because it “would cost too much and . . . take too long,” a welcome note of skepticism, but soon afterward, his staff issued a “clarification” explaining that the governor was simply “refocusing to get a finished product from Bakersfield to Merced,” the first leg of the envisioned rail system.

The high-speed rail project is a disaster, with cost projections ballooning and the anticipated time of a trip from San Francisco to Los Angeles coming in at four hours; an airplane can get you there in one. The practical thing for Newsom to do would be to scrap it entirely, but that’s not politically feasible. He might be better advised to consider a private-market alternative that could satisfy both practical and political considerations: an autonomous autobahn, where, according to Motor Trend writer Mark Rechtin, “vehicles equipped with self-driving technology run in platoons at a constant 120 mph.”

It may be some time before autonomous cars can navigate streets and adapt to all the complexities of urban life, but self-driving freeway travel might not be so far off. It will require better highways, which don’t come cheap in California, where road construction costs 2.5 times the national average, due in large part to costly environmental reviews and pro-union contracts. But even at $7 million a mile for new rural-freeway construction and $11 million per mile for its urban counterpart, the price tag for a California superfast highway, stretching roughly 500 miles—the distance between San Diego and Sacramento—would be only about 5 percent of that of high-speed rail, which current projections put between $70 billion and $120 billion. The model is Germany’s autobahn, “a reliable national highway system that is very safe despite an unrestricted speed limit,” according to state senator John Moorlach of Orange County. Moorlach cites a World Health Organization study that estimates that road traffic deaths-per-mile in Germany are one-third as common as in the United States.

Access to this high-tech superhighway would be strictly controlled. “Only properly inspected smart vehicles with transponders would be permitted,” says Rechtin. With usage limited to qualified automobiles, the cost of building an autonomous autobahn would properly be shouldered by those who drive on it, preferably via tolls. “Who wouldn’t pay an extra $100 (half a plane ticket) to zip along, hands-free, at double the speed of the current I-5, not having to deal with TSA at the airport, and still have access to their own car when they reach their destination?” Rechtin asks. In this scenario, the autobahn would be the car version of an express flyer, with exits and rest stops spaced out at 50-mile intervals to reduce lane-changing.

Moorlach introduced a bill to open such a road earlier this year. In its original language, it required the California Department of Transportation to build “two additional traffic lanes on northbound and southbound Interstate Route 5 and State Route 99,” the major north-south freeway routes in the state, and to “prohibit the imposition of a maximum speed limit for those traffic lanes.” Since amended, the bill now more modestly directs the department to “submit a report that includes policy recommendations to the Legislature and the California Transportation Commission on any potential advantages of the German autobahn system compared to California’s state highway system and on the feasibility of implementing those potential advantages in California.” Moorlach believes that his autobahn project would appeal to the state’s Europhiles in the same way that the Euro-flavored “bullet train” attracted their support.

An autonomous autobahn is not the only alternative to government-run high-speed rail, however. A Florida-based firm, now called Virgin Trains USA after partnering with British billionaire Richard Branson, operates the country’s only private-owned intercity rail line and is moving ahead with a rail project connecting Los Angeles and Las Vegas. Virgin Trains USA is confident that it can keep costs down and make a profit; no one believes that California’s high-speed rail project could do either of those. California policymakers would also be wise to keep an eye on a private-sector rail project in Texas, as well as Elon Musk’s hyperloop proposal.

These initiatives may or may not pan out, but as Pacific Research Institute fellow Bartlett Cleland says, whether the market deems them successes or failures, “the risk will be borne by investors”—not taxpayers. The same can’t be said of California’s high-speed rail; taxpayers may have to cover nearly all its construction costs. It’s time for the Golden State to shelve this unworkable project and start looking at alternatives that might actually succeed in moving people around the state ten years from now.


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