MOORLACH UPDATE — Housing and Banking — July 4, 2019

Happy 4th of July!!

The last week has seen the Capitol hopping over a July 12th deadline to construct and approve a wildfire/utility/insurance solution that the credit rating agencies will be happy with. It’s a big assignment and without a lot of specifics, it’s being crammed down our throats. What makes this task interesting is that we have not seen, as of 5 p.m. last night, the proposed legislation. And a meeting (hearing) of the Senate Energy, Utilities & Communications Committee to vote on the gut and amended AB 1054 is set to be held, as of a few hours ago, on Friday, at the Chair’s call. I was informed late last evening, around 8 p.m., that the meeting has been moved to Monday.

With the 72-hour rule, this massive undertaking will have to be approved by the Legislature early next week, making the final week before the summer break a memorable one. Consequently, I’ve enjoyed meetings yesterday with representatives of PG&E and Edison International. But, this is not the way critical public policy should be shaped. With fun like this, who needs fireworks?

In the last few days, I’ve been focused on addressing the topic of involuntary housing for mentally ill homeless individuals. We would not allow seniors suffering with dementia to live on the streets. So why do we allow young people with schizophrenia to do so? It was discussed on the Dr. Drew Midday Live with Leeann Tweeden Show last Friday, June 28th, at the 2 p.m. hour (see http://www.kabc.com/dr-drew-midday-live/ and

https://omny.fm/shows/dr-drew-midday-live-with-leeann-tweeden/dr-drew-midday-live-6-28-19-2pm . And I was also on The Larry O’Connor Show on July 1st at 11:00 a.m. where I raised the subject (see https://omny.fm/shows/cumulusla/the-larry-oconnor-is-joined-by-california-state-se).

The California Globe picked up my comments on the Senate Floor this past Monday and used my concern as the closer for the first piece below. The joys of trying to message the need for a total reevaluation of how gravely disabled individuals are being treated in our society.

Yesterday’s Senate Governance and Finance Committee heard the public bank bill. I shared that I understood the concept, as I had tried to form a bank some 23 years ago while serving as a County Treasurer. My efforts found that it was feasible, but not profitable. The potential to increase revenues was negligible, and the possibility of unanticipated expenditures would have put the taxpayers at risk. I also shared that the audit reports issued by the State Auditor on the DMV and the High Speed Rail project gave me less confidence that a government run bank would pencil out. The North Bay Business Journal provides more on the subject in the second piece below. The title is deceptive, as this initiative did not "sail through," as it even had a rare "no" vote from a Democrat member of the Committee.

I am a big fan of the committee’s chair, so I will give him a copy of our most recent state rankings on the Senate Floor tomorrow morning (see MOORLACH UPDATE — 2017 State Per Capita UNPs — April 2, 2018). The states he mentioned are doing better than California, with the exception of Kentucky. Kentucky had been a Democrat-controlled state until November of 2016 and is now being turned around by a Republican majority in both of its legislative houses and in the Governor’s mansion. The biggest residue left by the Democrats in Kentucky is, you guessed it, a massively underfunded public employee defined benefit pension plan.

25th Anniversary Look Back

After my election loss in June of 1994, I wrote a seven-page letter to California Assemblyman Curt Pringle. It was dated July 29, 1994. Interest rates were still being raised by the Federal Reserve Board and I was truly concerned about my county. I do not believe I’ve ever made this letter public.

I had five major concerns. Here is the opening of my correspondence and my first concern, City Investment Policies.

Dear Curt:

Let me, once again, thank you for all of your support and encouragement in my campaign to unseat incumbent Orange County Treasurer-Tax Collector, Robert L. "Bob" Citron. It was a great learning experience to challenge our nationally known "Democratic leverage artist."

Based on what I did learn during the campaign makes me think that losing was probably the best thing that could have happened. We uncovered just how speculative and interest rate sensitive the Orange county Investment Pool is. Accordingly, I have five proposals for legislation that I would like to see adopted and will be more than happy to assist in drafting. Let me share my obesrvations and recommendations.

City Investment Policies

Every city has an investment policy. It is usually reviewed and approved every year as part of a city’s budget process.

The City of Tustin has a provision in its investment policy prohibiting it from investing in reverse repurchase agreements. Accordingly, that City pulled out of the Orange County Investment Pool (Pool) during the campaign and garnered a significant amount of press attention. Mr. Citron is very sensitive about municipalities pulling out of the Pool; more on this later.

Following the campaign, I met with the Finance Director of Costa Mesa and discussed my own city’s investment policy. It allows for up to ten percent of its reserve funds to be invested in reverse repurchase agreements. It also allows for the City to put thirty percent of its funds in the Pool.

I informed my city’s Finance Director that the Pool was over two-hundred percent leveraged in its portfolio through the use of reverse repurchase agreements. Accordingly, having thirty percent of the City’s portfolio in the Pool would violate the provision limiting such investments to no more than ten percent.

The response I received was mind boggling. State law permits investment policy provisions to be circumvented if the City invests in a County Investment Pool. Obviously, I come from the private sector and find such "loopholes" to be ludicrous. You can’t do it yourself because it runs contrary to the three basic priorities of investing: safety of principal, liquidity, and then yield. But you can have Citron stand these priorities on their head until the cows come home!

This statute must be reviewed and modified so that an investment in a County Investment Pool can not override any provision in a City’s Investment Policy if the Pool’s investments are in conflict.

For my last Look Back, see MOORLACH UPDATE — Half Empty Reserve Concerns — June 24, 2019. Have a great Independence Day!

California Senate Passes ‘Housing for Homeless,’ Bill With Penalty Component

In Sacramento, home of the state government, homelessness is up 56 percent increase in the past two years

By Katy Grimes

https://californiaglobe.com/section-2/california-senate-passes-housing-for-homeless-bill/

The Committee on Budget and Fiscal Review authored AB 101, which provides for statutory changes needed to enact the housing and homelessness-related provisions of the Budget Act of 2019.

In short, the Legislature is making legislative changes to the legislatively-created housing and homeless problem in California, according to Sen. Jim Nielsen (R-Gerber). Nielsen said, “some of those have been foisted on that community by this Legislature.”

AB 101 would require the state Office of Audits and Evaluation to audit the Community-Based Transitional Housing Program, which provides grants to cities and counties to increase the supply of transitional housing available to recent parolees, and to report the results of the audit to the Joint Legislative Budget Committee by May 1, 2020. Current law requires the Office of State Audits and Evaluations to complete the audit and to report to the Joint Legislative Budget Committee by May 1, 2019.

But if the city or county does not properly comply, punishment will come from the Attorney General.

Senators spoke in favor of the bill, and it was passed by the Senate 39-0. However, many Senators still blame the homeless explosion on lack of affordable housing in California, and not on opioid drug addiction and the crime used to support the habit, serious mental illness, other addictions, as well as the laws which decriminalized drug crimes, violent sex crimes, theft, as well as elder and dependent adult abuse, assault with a deadly weapon, rape… many crimes previously considered violent.

Sen. Bob Hertzberg (D-Van Nuys), called the crisis an “urgent moral issue,” and said, “only permanent housing solves homelessness.”

Some Senators blame the affordable housing crisis on wages in the state not being high enough to afford skyrocketing rents. Sen. Maria Elena Durazo (D-Los Angeles) said half of the people living on the streets “have jobs, but don’t make enough money.” She said they “live in cars or on someone’s sofa.”

Sen. John Moorlach (R-Costa Mesa) addressed the seriously mentally ill and the need for involuntary housing. “What about those who cannot take care of themselves?” Moorlach asked.

The bill seems heavy handed if the goal is to quickly build more affordable and transitional housing and get people off of the streets.

The bill analysis said this bill would require Housing and Community Development to offer the city/county the opportunity for two meetings (in person or telephone) to discuss their violations and to provide the city/county written findings regarding the violation prior to allowing the Attorney General to bring suit against the city or county. It would then allow the Attorney General to seek, and a court to allow, certain remedies when the court finds that a local jurisdiction is not substantially compliant with housing element law.

AB 101 would require the California Attorney General to request, upon a finding of the court that the housing element of a city or county does not substantially comply, that the court issue an order or judgement directing the city/county to bring its housing element into compliance, and would require the court to retain jurisdiction to ensure that its order or judgement is carried out. Once the court determines that the housing element substantially complies, this bill would provide that the court determination has the same force and effect as HCD’s determination that the housing element substantially complies.

Sen. Nancy Skinner (D-Berkeley) expressed concern that AB 101 too narrowly defines who can receive the housing benefit. Skinner said if someone is already homeless, or of they are within 14-days from being evicted/homeless, they qualify. But, Sen. Skinner pointed out, many people move out of their rentals prior to being evicted, even if they become homeless, rather than have an eviction on their record – the kiss of death in ever qualifying for another rental. She said that homelessness in Alameda County, her district, is up over 47 percent since 2017.

In Sacramento, home of the state government, homelessness is up 56 percent in the past two years.

But too many lawmakers remained focused on the high cost of housing in California as the reason so many live on the streets in the Golden State. If that was truly the cause/effect, the Legislature could immediately suspend the state’s notorious building requirements like the California Environmental Quality Act, and require cities and counties to remove their many layers of building restrictions, regulations, permits and hefty fees, and mandate a time frame in which housing projects are approved. And they could do this under an emergency order.

However, while there is most definitely a housing shortage in California, the people with jobs who live in their cars are often young tech-industry workers living in the most expensive area of California — Palo Alto, in Santa Clara County near the San Francisco Bay area, where the median home price is $2,932,700.

Building more housing would help the cost of housing drop dramatically, eventually. But for the drug-addicted criminals, and the severely mentally ill, housing isn’t the only answer, and it may not be the right answer. Treatment for those folks is the first step. As for the violent sex offenders living on the streets instead of in jails and prisons, and the felony rapists and human sex traffickers, which are no longer considered violent felonies, the Legislature can do an immediate legislative fix.

Instead, six real criminal justice reform bills were killed last year in the California Legislature which would have expanded the definition of violent crime to include human trafficking, elder and dependent adult abuse, assault with a deadly weapon, rape, and other crimes most Californians consider violent.

These six bills would have corrected unclear language and serious flaws in Proposition 57, passed in 2016 by voters. Prop. 57, titled the “Parole for Non-Violent Criminals and Juvenile Court Trial Requirements Initiative,” was to increase rehabilitation services and decrease the prison population. Though the measure passed, it was misleading on many fronts. Voters believed the title and passed the initiative.

As Prop. 57 stands, crimes such as human trafficking, child abduction, elder and dependent adult abuse, assault with a deadly weapon, and rape of an unconscious person, are no longer considered “violent crimes.”

Fixing California’s homeless crisis is a multi-pronged process, but not insurmountable. Housing is one important component, as is addressing the rampant criminal justice element, and the desperate need for mental illness treatment facilities and involuntary housing, and this can all be done immediately by this Legislature.

Public-banking bill sails through California Senate committee with North Bay support

CHASE DIFELICIANTONIO

NORTH BAY BUSINESS JOURNAL

https://www.northbaybusinessjournal.com/industrynews/law/9766235-181/california-public-banking-law

A bill that would allow some municipalities to establish their own banks in California edged through a state committee Wednesday.

The legislation, Assembly Bill 857, passed the Senate Governance and Finance Committee on a 4-3 vote with the support of Chairman Mike McGuire, D-Healdsburg.

Authored by Assemblymen David Chiu, D-San Francisco, and Miguel Santiago, D-Los Angeles, the bill would allow local governments of a certain size to create publicly owned banks with the goal of divesting from large banks invested in the fossil fuel industry, private prisons, and other industries while investing local tax money back into communities.

Municipalities could also band together to create joint powers authorities under the bill.

McGuire did not speak extensively in support of the bill during the hour-long discussion but pushed back against doubts voiced by Sen. John Moorlach, R-Costa Mesa, that publicly run banks could end up resembling other struggling public projects like the beleaguered California high-speed rail project.

“I think it’s important to note that the state would not be running the bank — it would be local governments,” McGuire said. “It just baffles me that while the state has challenges, I encourage you to go take a look at Mississippi. I encourage you to go take a look at Kentucky, I encourage you to go look at New Mexico. Look at several other states. See how they run, the challenges they have, then compare it with California.”

Opposition to the bill also came from the California Bankers Association and the Association of County Tax Collectors and Treasurers. Jason Lane of the bankers association expressed concern that while the bill would require any public bank to have Federal Deposit Insurance Corp. insurance and conduct other due diligence before opening its doors, all banks takes losses.

“When you have an erosion of capital due to loan losses … will the state have to step in and backfill those losses?” Lane asked.

Chris Petlock, who serves as the chief financial officer for the Valley of the Moon Water District in the Sonoma Valley and is a member of Friends of Public Banking Santa Rosa, backed the bill.

He said the 2017 North Bay fires exposed how much infrastructure work needed to be done in his district and said a public bank could offer loans to municipalities like his at lower interest rates than large financial institutions.

The bill now goes to the Senate Appropriations Committee for consideration.

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