MOORLACH UPDATE — Biggest Budget, Biggest Deficit — June 10, 2019

The Budget Conference Committee held lengthy meetings on Monday and Tuesday of last week to close out the differences the two houses had on the budget. Then the Governor’s office, through the Department of Finance, the Speaker of the Assembly and the President Pro Tem of the Senate spent the next few days hammering out various compromises with practically no input from the minority party.

This process did not conclude on Wednesday or Thursday, as the negotiators had predicted. I was back to the Capitol on Friday, but informed late in the day, that the Committee would meet again late Sunday afternoon. The joys of this assignment.

The semi-completed list of preferred or modified choices between the Assembly and Senate were finally provided early Sunday morning. I arrived at the Capitol at noon to be briefed with my colleague Sen. Jim Nielsen for four and a half hours. Then we started our third and final meeting of the Budget Conference Committee at 4:30 and concluded around 9:30 p.m.

The Sacramento Bee‘s electronic version, the first piece below, provides the details. Near the conclusion of the meeting, I informed the members that earlier in the week, during one of our first two meetings, I had inquired about the status of the state’s Comprehensive Annual Financial Report (CAFR) and when would it be released. It would be appropriate to have the last year’s audited financial statements before we voted on the next year’s annual budget.

I then stated that it had been released between our second and last night’s meeting and it reported that the Unrestricted Net Deficit had grown to $213 billion (see MOORLACH UPDATE — Results Released — June 6). Consequently, my voting was predicated on a poor balance sheet and a reluctance to incur more spending. The Independent Journal Review also used my quote (see https://ijr.com/california-healthcare-illegal-immigrants/).

The California Globe provides a shout out to my review of the state’s June 30, 2018 CAFR in the second piece below.

The Democrats turned the budget into a Christmas tree last night. They brought out long lists of district requests that we had not seen before yesterday. I believe California should be focused on reducing debts, not going on a spending spree. The last surprise budget adjustment of the night was a request to reduce deferred maintenance by $100 million, as the proposed budget now needed to be balanced.

Can you believe it? The state is flush with $21.5 billion and the Democrats are overspending. I stated that reducing deferred maintenance is something a municipality does in a recession. This one budget adjustment was an indictment that this was not a successful budget.

25th Anniversary Look Back

The June 8th edition of the OC Register found reporter Chris Knap back with “Citron likely to keep long-time hold on office — Tax Collector-Treasurer: Attacks on his reputation backfired, the incumbent said as he held the lead Tuesday.” It started a series of reflections on the campaign by media pundits that were harsh and brutal. Here are a few selected paragraphs:

“I believe the voters understood what this election was all about,” Citron said. “The partisan attacks, and the attacks on my reputation as an investor of public funds, were irresponsible and they have backfired.”

[Moorlach] decliend to apologize for his campaign style.

“I feel we dealt with the issues,” he said. “We ran a clean campaign. I have no regrets.”

The turning point for Moorlach may have come in late April, when his honorary campaign chairman, state Sen. Marian Bergeson, R – Newport Beach, pulled back her endorsement.

On June 9th, in the Daily Pilot, liberal columnist Fred Martin fired a nasty attack in his review of the election results:

There certainly was justice after the scuzzy campaign John Moorlach ran to get himself elected county treasurer-tax collector.

Moorlach’s strategy in this supposedly nonpartisan race was to (a) denigrate incumbent Robert L. Citron because he is a Democrat, and (b) terrify the citizens by alleging that Citron’s complex investment strategies are going to lose all the county’s money.

One Moorlach supporter went so far as to endanger Orange County’s unblemished credit record by repeatedly contacting New York bond-rating services and financial media, trying to get them to investigate Citron.

None of the smeary stuff worked and Moorlach got his butt kicked, big time. Maybe there’s hope for us after all.

The same day, The Wall Street Journal provided the results in “Voters Re-Elect Treasurer Who Used Derivatives.” Maybe this title is Bob Citron’s epithet? The false euphemisms were abundant.

Mr. Citron maintained that his approach was “aggressively within prudent limits.” Rising interest rates had hurt the portfolio on paper, Mr. Citron said, but he said that he could hold his securities until maturity, and that by using that strategy “we do not take losses.”

The last Look Back can be seen at MOORLACH UPDATE — City of Inglewood — June 8, 2019.

Undocumented immigrants to get health care in Gavin Newsom’s California budget deal

BY SOPHIA BOLLAG AND

ADAM ASHTON

https://www.sacbee.com/news/politics-government/capitol-alert/article231310348.html

California Gov. Gavin Newsom’s first budget won’t look exactly like he wanted, but a deal lawmakers released late Sunday largely fulfills the objectives he set six months ago when he first outlined his spending plan.

Lawmakers want to use an “extraordinary” state budget surplus to expand health care options for undocumented people while stockpiling billions of dollars in reserves in anticipation of an economic downturn, according to documents the Legislature’s Budget Conference Committee released.

The agreement marks the end of months of negotiations between Newsom and the Legislature. Lawmakers face a June 15 deadline to pass the budget, which will take effect in July.

The agreement includes funding to let young undocumented young adults under age 26 enroll in Medi-Cal, the state’s health insurance program for low-income Californians. But it doesn’t extend that eligibility to undocumented seniors, as state senators had proposed.

The expansion will take effect Jan. 1, 2020 and cost $98 million in the upcoming fiscal year. It will make California the first state to allow undocumented adults to sign up for state-funded health coverage.

The budget includes a fine on people who don’t buy health insurance known as an individual mandate. The fines were initially implemented as part of the federal Affordable Care Act law known as Obamacare, but Republicans acted in 2017 to roll them back. Newsom and legislative leaders say re-imposing the penalty at the state level will shore up the state’s health insurance marketplace and keep premiums from rising dramatically.

Revenue from the mandate will fund insurance premium subsidies for middle income people. The budget agreement also includes an additional $450 million over three years to fund insurance subsidies after some lawmakers argued mandate revenue alone wouldn’t make health insurance affordable.

Anthony Wright, executive director of advocacy group Health Access, said the budget agreement will help hundreds of thousands of Californians access health care.

Wright applauded the Legislature for securing additional funding for insurance subsidies, which the governor’s office had initially resisted.

“While it’s not all we sought, it will provide a real tangible difference for people, especially for those around and below poverty and for middle income families who don’t get any help under the federal law,” he said.

Cynthia Buiza, executive director of the California Immigrant Policy Center, praised the deal for expanding state health care to undocumented young adults, but faulted the compromise for not including two other priorities for immigrant advocates. They wanted Newsom to offer health care for undocumented seniors and to extend the earned income tax credit to low-income undocumented immigrants.

“For California’s immigrant communities, today’s budget deal is bittersweet,” Buiza said in a statement “The exclusion of undocumented elders from the same health care their U.S. citizen neighbors are eligible for means beloved community members will suffer and die from treatable conditions. And the exclusion of many immigrants from the Earned Income Tax Credit will perpetuate the crisis of economic inequality in our state.”

Newsom in May proposed a $213 billion state budget. The budget committee on Sunday did not disclose the total cost of the agreement it’s recommending.

“The budget agreement we’re finalizing tonight builds on the strong budget proposal of the governor, while adding significant legislative priorities,” said Sen. Holly Mitchell, D-Los Angeles, who leads the joint legislative budget committee. “The budget agreement maintains our agreement to responsible budgeting, which includes the largest reserves in history – over $20 billion – finally paying off the remaining wall of debt from the Great Recession and making supplemental pension payments.”

Newsom won’t get the so-called water tax he proposed in January to pay for water system improvements for communities with unhealthy drinking water sources. But, lawmakers agreed to pay for the projects, anyway.

The compromise includes $130 million to start the work next year and commits to more funding through 2030.

“We are thrilled that the Legislature and Governor Newsom have committed stable funding to ensure that all Californians have access to safe and affordable drinking water this year and in the years to come,” a group of advocates known as the Safe Drinking Water Coalition said in a written statement.

The budget agreement includes billions of dollars supplemental pension payments to ease financial pressure on California school districts, which have been adjusting to higher rates from the California State Teachers’ Retirement System.

Newsom in January had proposed spending $7.8 billion beyond what was required by law on CalSTRS and the California Public Employees’ Retirement System. The budget compromise shows lawmakers want to spend even more.

The Legislative Analyst’s Office in April referred the state’s surplus as “extraordinary moment” that lawmakers could use to prepare for a recession. It urged more savings than Newsom recommended.

Democrats have supermajorities in both houses of the Legislature, so they don’t need Republican support to pass a budget.

Republicans on the budget committee voted against a number of spending proposals Sunday night, voicing worries about long-term debt.

“I’ve been voting no or abstaining on a lot of spending opportunities,” Sen. John Moorlach, R-Costa Mesa, said. “Some people think the glass is half full, I’m looking at it as half empty, so that will maybe explain my caution on a lot of these spending votes tonight.”

State Economy Rankings: California is a Real Dichotomy

Rankings show California’s economic health is not in the middle class

By Katy Grimes

https://californiaglobe.com/section-2/state-economy-rankings-california-is-a-real-dichotomy/

California just ranked in the top 5 in the overall WalletHub 2019 State Economy Rankings, while ranking low in the Economic Health Ranking. WalletHub compared the 50 states and the District of Columbia across three key dimensions: 1) Economic Activity, 2) Economic Health and 3) Innovation Potential.

In October 2018, California ranked 5th worst in the nation based on most fiscally solvent states, in the WalletHub State Fiscal Rankings.

California has the highest poverty rate in the nation, but also ranked number #5 in the highest number of high-tech industry jobs.

California was ranked 47th in median annual household income, which dragged down its overall ranking.

California tied for a four-way-first with Massachusetts, Washington and Oregon in the number of independent investor patents.

These rankings show how California has driven out manufacturing and production, replaced with high tech and service jobs, and established a part time economy, with a massive welfare system.

Even the New York Times recognizes California’s issues: “California may be a symbol of liberal values, but it’s also a symbol of the failures of liberal policy. It has the highest poverty rate in the country, housing costs are out of reach for many, and squalor and deprivation plague the streets of the biggest cities.”

California’s Real Fiscal Health

Sen. John Moorlach (R-Costa Mesa) just took a dive head first into the latest release of California’s Comprehensive Annual Financial Report (CAFR) for June 30, 2018 by the State Controller, released June 3 – nearly one year after the close of the 2018 fiscal year:

“I focus on the Governmental Activities of a municipality, so let me start there,” Moorlach said. “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.”

The CAFR can be found at https://www.sco.ca.gov/Files-ARD/CAFR/cafr18web.pdf. Moorlach’s analysis is here.

WalletHub’s panel of economic experts point out that not all economic growth strategies are effective. For the best ways to stimulate the economy and achieve lasting prosperity, the experts shared their thoughts on the following key questions:

  1. What are the most effective ways for state and local officials to boost their local economies?
  2. What can states do to prevent “brain drain” and develop, attract and retain highly skilled workers?
  3. States often compete for business investment by offering tax breaks and other incentives. Do such efforts more often result in a net positive or net negative impact on state economies? Do such efforts create a “race to the bottom” across states?
  4. What makes a state attractive to potential entrepreneurs?
  5. In evaluating the states with the best economies, what are the top five indicators?

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