Wednesday provided an opportunity to look at a few critical occurrences.
The first is the election result for the parcel tax for Los Angeles Unified School District (LAUSD), which failed miserably (see MOORLACH UPDATE — LAUSD and Future Concerns — January 24, 2019, MOORLACH UPDATE — LAUSD Comes Calling — January 19, 2019, MOORLACH UPDATE — LAUSD vs. OC School Districts — September 18, 2018, and MOORLACH UPDATE — $15 Billion Obligation — December 27, 2018).
It’s a shame when public employee unions negotiate lucrative contracts that break the bank and then, instead of modifying the collective bargaining agreements, the union-controlled governing board’s answer is to stick it to the taxpayers with yet another tax increase. When Orange County filed for Chapter 9 bankruptcy, the voters rejected a proposed sales tax increase to bail out, and thus enable, the county’s failed fiscal management. The residents of LAUSD reacted to the parcel tax proposal in the same manner. The California Globe provides the details in the first piece below.
The second is the 33rd Senate District Special General Election, where the Republican candidate regretfully did not win. Cudahy City Councilman Jack Guerrero was an excellent candidate and would have been a wonderful addition to the State Senate. Now that the race is over, I’m providing the recent coverage by the Long Beach Post from last month in the second piece below.
The third is the release of California’s CAFR for June 30, 2018 by the State Controller (see MOORLACH UPDATE — California’s Tardy CAFR — June 3, 2019 june 3, 2019 john moorlach). It actually happened before the State’s Budget Bill was concluded, which is a pleasant surprise. I’m currently at the call of the Chair of the Budget Conference Committee and anticipate working through the weekend to meet the June 15 constitutional deadline.
What does the Comprehensive Annual Financial Statement tell us?
The latest CAFR can be found at https://www.sco.ca.gov/Files-ARD/CAFR/cafr18web.pdf. I focus on the Governmental Activities of a municipality, so let me start there. First, the Unrestricted Net Deficit has grown by nearly $44 billion! That’s about $1,100 per resident. California’s Unrestricted Net Deficit for Governmental Activities is now $213.3 billion, up from last year’s $169.5 billion. Add in the Unrestricted Net Deficit for Business-type Activities of $16 billion, and the combined amount is $230 billion in the red! I told you we would be close to a quarter-trillion dollars.
Diving in for the basic details, we find that cash and pooled investments are up $12 billion. But, accounts payable is up $3.2 billion, for a total of $28 billion. Can you find me another municipality with a larger accounts payable balance? The big number, of course, is the addition of $45.5 billion in retiree medical liabilities to the balance sheet, bringing the balance to $73.7 billion. This is three times the amount LAUSD reported for the same fiscal year. And, although the stock market has been doing relatively well during that time period, unfunded pension liabilities rose by another $10.7 billion, to $88 billion.
Oh Lord, please forgive us our debts.
Here are the highlights, in millions, with net deferred resources rounded slightly to make the math work:
Current Liabilities up . . . . . . . . $7,025
Retiree Medical up . . . . . . . . .$45,536
Pension Liabilities up . . . . . . .$10.749
Subtotal . . . . . . . . . . . . . . . . . $63,310
Cash up . . . . . . . . . . . . . . . . .$12,284
Accounts Receivable up , , , . . $1,825
Net Deferred Resources up ~. .$5,385
Subtotal . . . . . . . . . . . . . . . . . $19,494
Unrestricted Net Deficit up . . .$43,816
25th Anniversary Look Back
It was the last few days of the campaign. In the June 5, 1994 Sunday edition of the LA Times, Thomas A. Fuentes of Lake Forest and the chairman of the Republican Party of Orange County, had his Letter to the Editor printed. It was titled "Backing Challenger in Treasurer Race." He finally had a chance to respond to the critics that had pulled him into the fray. Here are the concluding paragraphs:
[Citron] gambles with taxpayers’ money in his Las Vegas-like high-risk investment strategy. Safety and liquidity be damned is Citron’s attitude.
In contrast to Citron, who has been on the public payroll for over 33 years, Orange Countians have the opportunity to elect talented and able certified public accountant and certified financial planner John Moorlach from the private sector.
I know John Moorlach as he has served with ability and distinction as assistant treasurer of the Republican Party of Orange County and likewise as the chairman of our precinct committee. He is an accomplished business professional and a dedicated family man. He is a keen conservative thinker.
John Moorlach is just the kind of anti-tax, pro-term limits leader we need in Orange County government.
For the last Look Back, see MOORLACH UPDATE — Budget Conference Season — May 30, 2019.
Big Blow to Mayor Garcetti in the defeat of Measure EE in Los Angeles
Second time in 10 years LA voters defeat parcel tax increase
By Katy Grimes
Following the contentious Los Angeles Unified School District strike in January, the controversial property tax hike proposed by the school district went down in a resounding defeat Tuesday. Measure EE garnered only about 45 percent of voter approval when it needed a two-thirds majority vote to pass.
“Measure EE has been voted down, a rare win for common sense in a region that could use it,” the Los Angeles Daily News reported. “The measure was nothing more than a bailout for Los Angeles Unified’s irresponsibility. Its defeat should discourage the recent wave of tax hikes pitched as the solution for poorly run school systems.”
A yes vote would have authorized the LAUSD to levy an annual parcel tax for 12 years at the rate of $0.16 per square foot of building improvements to fund educational improvements, instruction, and programs.
Democratic Los Angeles Mayor Eric Garcetti and school district officials campaigned vigorously for Measure EE, and were counting on its passage largely for the cash infusion into the nearly insolvent mega-district.
What’s Going on at LAUSD?
California State Sen. John Moorlach (R-Costa Mesa) has issued many warnings about the Los Angeles Unified School District budget crisis, saying it is so big it could wipe out the California budget surplus… and perhaps the state budget.
Moorlach says the LAUSD has the largest unrestricted net deficit of any California school district, at $10.9 billion, and now that the district has to report the retiree medical unfunded liability on the balance sheet means it will increase LAUSD’s deficit by another $15 billion.
“The unrestricted net deficits for 2016 and 2017 were $10.5 billion and $10.9 billion, respectively,” Sen. John Moorlach (R-Costa Mesa) wrote in 2018. “For 2018 it is $19.6 billion, or 80 percent higher!” Moorlach said this is largely the result of net “other postemployment benefit (OPEB) liability and net pension liability for various retirement plans.”
Moorlach’s 2018 report, “Financial Soundness Rankings for California’s Public School Districts, Colleges & Universities,” found two-thirds of the 944 state school districts “bleed red ink.”
“LAUSD ranked 922nd, at a negative $2,315 per capita, based on its 2017 CAFR. Using the LAUSD’s new 2018 CAFR, that number now jumps to a negative $4,180 per capita. This is what every man, woman and child would have to pay to get LAUSD out of its negative condition,” Moorlach found.
This is why Mayor Garcetti and LAUSD officials were counting on passage of Measure EE and the anticipated cash infusion.
Ten years ago, Los Angeles voters were faced with a $100 per year parcel tax to raise about $100 million per year for LAUSD. “Measure E not only failed to reach the required two-thirds majority needed to pass the measure, but it was actually voted down 53 percent to 47 percent,” LADN reported.
“Nine years later, LAUSD is still a fiscal train wreck, and is led by a school board and superintendent who thought the best way to get out of the district’s financial hole was to dig a deeper hole and then ask for a $500 million per year tax increase through Measure EE.”
Notably, Garcetti’s Los Angeles spends one out of every five general fund dollars on retirement benefits for city employees, according to the city’s proposed annual budget.
‘I’ve been battle tested’: Jack Guerrero says he’s ready to fight corruption in Sacramento
Jack Guerrero had no intention of going back to his hometown city of Cudahy—or even becoming a politician—when he left as a teen after receiving an acceptance letter to study at Stanford University in Palo Alto.
Growing up in a tough neighborhood in southeast Los Angeles County in the 1980s and early ’90s, he said he faced taunting from local gang members on his way to school, witnessed drug deals and domestic violence incidents and experienced the constant presence of police helicopters above his neighborhood.
“It was tough to be a kid at that time,” Guerrero said.
Today he is a two-term councilman of Cudahy, a position he’s held since 2013, and the Republican candidate in the 33rd state Senate District race that will be decided on June 4.
He’s up against Long Beach Councilwoman Lena Gonzalez, the heavily favored Democratic front-runner, to represent a district that includes southeast cities along the 710 Freeway, including Huntington Park to the north and the majority of Long Beach to the south. The position was left vacant by Ricardo Lara, who was elected state insurance commissioner in November.
Guerrero faces an uphill battle to win the seat; the district is over 55% registered Democrats, and roughly 11% Republican.
The son of working-class Mexican immigrants, Guerrero said his journey to political office happened almost providentially. Months into moving in with his father in Cudahy while he found a place to live in a beach city, a bribery scandal involving local elected officials broke out.
It was “made for television” stuff, Guerrero recalled. One Cudahy city official even barricaded himself in his business for hours as authorities attempted to take him into custody.
“I remember feeling just awful for my city,” Guerrero said, “thinking, this poor city where I was born and raised and leadership can’t get it together to serve constituents honestly.”
It motivated Guerrero to find a candidate who was both honest and competent to support. When he couldn’t find one, though, he decided to run.
The private sector life
Before the 45-year-old unmarried economist grew homesick and decided to live closer to relatives, he wore many hats in the finance industry and traveled the world.
He’s a certified public accountant and vice president of corporate treasury at Union Bank with experience in investment banking, auditing government agencies and advising Fortune 500 companies. His jobs have taken him to New York, San Francisco, London and Zurich.
Before that, he earned a bachelor’s degree in quantitative economics from Stanford University (one of his professors was former U.S. Secretary of State Condoleeza Rice) and a master’s in business administration focusing on corporate financial management from Harvard University.
As a result, he considers himself a classical economist and free marketeer—a believer that the competitive market is the solution to many of today’s issues.
State Sen. John Moorlach, who represents the 37th District in Orange County and whom Guerrero closely aligns with politically, said having someone with Guerrero’s background could bring “real positives to Sacramento.”
Right now, Moorlach is the only certified public accountant on the state Legislature. “I could use some company,” he quipped.
More importantly, Moorlach said, having Guerrero on the Legislature would mean having a financial- and detail-oriented mind for one bill in particular: the budget.
“We need some people in Sacramento that have some real world business experience, that accounting acumen,” Moorlach said.
Red in a sea of blue
Guerrero may understand balance sheets, but is he able to muster enough support in a heavily Democratic district that hasn’t been represented by a Republican in recent years?
As a fluent Spanish-speaking child of blue collar Mexican Catholic immigrants, Guerrero believes he understands the 33rd Senate District, which is about 70 percent Latino.
“I think a lot of Democratic politicians are a little bit disconnected from the working poor,” Guerrero said.
He described some Democrats in elected positions as middle class who can bear the brunt of taxes as opposed to the working poor trying to make ends meet.
“It’s unfair to tax them in ways that make life difficult for them when the government then uses the money and gives fat salaries to executive management, money for consultants, pensions that are out of control and mismanages the cities’ finances,” he said.
David Hernandez, chairman of the Los Angeles Hispanic Republican Club, which has endorsed Guerrero, believes his willingness to call out politicians who offer sweetheart deals to businesses has resonated with his constituents in Cudahy—a city just over 1.2 square miles and a population at about 23,000.
“That type of pay-to-play favoritism—single bid contracts—that’s going on in every city of the district,” Hernandez said. “So often than not politicians are unwilling to point that out because there are so many people benefiting financially from that and who in turn contribute to the campaign.”
Guerrero’s colleague, Cudahy Councilwoman Elizabeth Alcantar, doesn’t doubt he cares about the community. But she differs in opinion on a lot of political issues that “have a lot of implications for our community,” she said.
Take, for example, immigration.
The councilwoman—whose day job is advocacy work for a nonprofit—estimates that nearly half of the mostly Latinos living in Cudahy are immigrants and half of those immigrants are undocumented.
“I don’t doubt he cares, but it’s tough,” Alcantar said.
What is seen as a nationally divisive issue had local effects when, in 2014, a resolution declaring Cudahy a Sanctuary City came before the council and passed. Guerrero abstained from that vote, which Alcantar interpreted as him not finding the issue important enough.
“We should be standing up and being vocal about our support for our immigrant community, our undocumented folks,” Alcantar said.
The council decision led to high tensions in future council meetings when outside conservative groups opposing illegal immigration continuously attended them in the following years.
Guerrero said he isn’t against immigration—pointing to his parents who worked as farm workers before turning to factory work—but does believe the U.S.-Mexico border needs to be made secure.
He believes legal immigration needs to be fixed so that it is more efficient and more closely aligned with the needs of the country’s economy.
His conservative views on LGBTQ issues and women’s reproductive rights are also troubling for Alcantar—and has been a point of criticism by his opponent, who supports both issues.
Guerrero abstained from a Pride month resolution put forth by another Cudahy colleague last June and has criticized Planned Parenthood.
“His staunch opposition to Planned Parenthood, to continue to paint it as simply an abortion clinic when it provides so many more services […] it does hurt our communities,” Alcantar said.
Alcantar believes such mischaracterizations of a health care center that provides flu shots, mammograms and other screenings may deter community members who could feel ashamed of being associated with it.
Similarly, she worries about their disagreement over what benefits city employees should have.
“One of the bigger issues we disagree on is the terms of what benefits our employees should have—whether they should have a pension in order to support themselves past working for the city,” Alcantar said.
The environment seems to be the one issue both Alcantar and Guerrero can agree on.
They both agree that plans to expand the 710 Freeway will hurt communities alongside it—including Cudahy and Long Beach. Gonzalez on the other hand, has expressed support for it.
However, Alcantar would like to see Guerrero speak about not just the negative health impacts but the environmental injustices that disproportionately affect low-income, communities of color.
Key issues for Guerrero
Business-friendly climate: Guerrero would like to lower taxes and cut the red tape that many businesses face when opening up in cities. He saw the issues in Cudahy where it took some businesses a year and a half to set up shop.
Guerrero believes these efforts would level the playing field for companies who don’t have lobbyists or have money to buy off politicians who then in turn provide special treatment, known as “carve-outs.”
“By doing policies that lower the tax burden for businesses across the board we then have the additional benefit of averting corruption,” Guerrero said.
Education reform: This is perhaps the most personal issue for Guerrero, who has called the state’s public education system “decrepit” and criticized funding priorities.
“Education should be about the children and most of the funding should go to the classroom,” said Guerrero, who noted the astonishing payments to consultants, administrators, lawyers and others that funding goes to.
A complete overhaul of the education system under Guerrero’s plan would include a focus on school choice—whether it’s public, parochial or charter—reform of teacher tenure rules and a “focus on core academic disciplines, not indoctrination of ideology or over-sexualization of elementary schools,” he said.
Guerrero said his charter school growing up was Cal State Los Angeles with which he supplemented his education at Bell High School. The school, at the time, was one of the lowest performing schools in the state and did not offer Advanced Placement courses that he sought.
“I really felt a bit short-changed by the quality of my education,” Guerrero said.
Without any help from his family or school, he was also able to attend Stanford and Georgetown University for summer classes between his sophomore and junior years. He paid for those courses by fundraising, reaching out to the local Elks Lodge and Kiwanis Club organizations.
He now sits on the advisory board for the Hispanic Scholarship Fund and donates to local schools and other charities the equivalent of his city council stipends.
Pension reform: Multiple times, Guerrero has been told to “dumb down” discussions or avoid talking altogether about what he believes to be the biggest threat to the state’s long-term sustainability: unfunded pension liability.
It’s estimated at one trillion dollars, according to a Stanford study, and Guerrero says it should be thought of as debt—something public agencies have not been honest with their constituents about.
Everyone in state government could be fired, Sacramento could be shut down and all of California’s tax revenue could be hoarded for six years “and we still would not recover,” Guerrero said.
At least one of the ways to address the issue is by taking a cue from the private sector by migrating away from a deferred pension plan and toward contributions like a 401K plan.
“If you are an employee in the public sector and you have earned your deferred compensation, that should be honored to the extent economically feasible,” Guerrero said. “Anything above that—that you have not yet earned—should be the subject of renegotiation.”
An ‘unusual’ senator
If elected, Guerrero says he is ready to expose corruption in Sacramento—from Democrats or Republicans.
“I will be an unusual senator because I’m not afraid to challenge the status quo and to call attention to corruption when I see it,” he said.
He hopes to bring to light what he believes are pernicious consequences of excessive taxation on working families.
“I’ve been battle tested,” he said, “and I will bring the same discipline to Sacramento.”
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