MOORLACH UPDATE — Lonely Republicans — July 24, 2019

With the recent passing of Doris Day, I often find myself humming the chorus of the song “Que Sera, Sera.” “Whatever will be, will be.” And then deal with it. When The Christian Science Monitor asked me if it was lonely up in Sacramento for a Republican legislator in the super-minority, the song came back to mind. A portion of our conversation is in their piece below.

The topic starts with the friction earlier this year resulting from the city of Huntington Beach and its travails with the new Governor (see MOORLACH UPDATE — Mediating Huntington Beach — February 8, 2019 and MOORLACH UPDATE — California vs. Huntington Beach — January 28, 2019).

Although it was not included, I did remind the interviewer of former New York Mayor Ed Koch’s famous quote, “The People have spoken … and they must be punished.”

Twenty-fifth Anniversary Look Back

Twenty-five years ago this month, I wrote a letter to Assemblyman Curt Pringle with legislation suggestions. I shared what I had learned from my experience the prior few months, garnered from running for the countywide elected position of Treasurer-Tax Collector.

My correspondence was several pages long, so I have been providing it in segments. For the first segment, covering city investment policies, see MOORLACH UPDATE — Housing and Banking — July 4, 2019. For the second segment, requesting the reporting of investments at the current market value, see MOORLACH UPDATE — Marking to Market — July 12, 2019. For the third segment, covering school districts, see MOORLACH UPDATE — More Housing — July 17, 2019.

This fourth segment shared my concerns about outside participants and it was headed, “Out-of-County Exposure.” Having outside participants is a smart move if you want to reduce overhead expenses and you mark-to-market. It’s an awful policy if you don’t operate like a traditional mutual fund. Ironically, just a few months later, it would be an in-county participant, the Irvine Ranch Water District, that would start withdrawing its substantial deposit (while claiming to other participants that everything was fine). This caused the proverbial “run on the bank” and forced the incumbent Treasurer to disclose the magnitude of the precarious situation that had developed, as predicted (see https://www.latimes.com/archives/la-xpm-1994-12-03-fi-4379-story.html).

Here’s what I wrote in 1995, less than five months before Orange County filed for Chapter 9 bankruptcy protection (with bolding to point out some prescient insights):

The two major concerns about the Pool are as follows:

1. That interest rates increase to a level where the cost of borrowing the $14.7 billion starts to come close to the income generated by the $22 billion. Should the borrowing costs, which are set at current market rates about every three months, exceed the income the portfolio generates, which is invested mainly in four year bonds, the Pool will implode. It will be like a rental property whose rent income is less than the mortgage payment. It is a foreclosure candidate.

2. That the Pool incur serious liquidation problems. Orange County only has about 87 municipalities. But the Pool has over 180 participants. This means that some 100 municipalities have invested in the Pool because it has been generating higher returns than most conservative investment opportunities. Higher returns equal higher risks. And Citron’s Pool is a major gamble that interest rates will continue to decline for the next four years. They are not.

The Pool’s yield will be decreasing with every incremental increase in short-term interest rates because his cost of borrowing is going up and his return is either fixed or decreasing (in the case of the inverse floaters).

Accordingly, those municipalities outside of the county can pull out and invest in other investment vehicles at any time. For instance, if short-term interest rates increase to five percent, the Pool will also be yielding about five percent. This may cause many to withdraw just to benefit from rising rates in the short-term, risk-free, marketplace.

The Pool is only one of many options for those outside of the county. In a competitive world, these municipalities will gravitate to the highest yielding, low risk investments available. They are “fair weather friends” and will leave once Citron fails to outperform the market (his self-aggrandized claim to fame).

As I stated earlier, if the Pool experiences liquidations and investments need to be sold at a loss to generate cash, some one will bear the losses. If those outside the county pull their funds first with no “marking to market,” then it will be the Orange County municipalities that will bear the brunt, and at much greater magnitudes.

Obviously, here I would recommend legislation that would prohibit municipalities outside a County’s jurisdiction from investing with the County Treasurer.

Why should our County be subject to so much risk exposure? Can you imagine the law suits from other areas because they were not aware of the risks Citron was taking and that our County should make them whole? It happens. It could financially wipe out the most conservative county in this country!

California’s ‘lonely’ Republicans: When minority status means irrelevance

WHY WE WROTE THIS

America may be closely divided – but in many states, the majority party has all the power, leaving the other side without a voice. The minority often resorts to the courts as its only avenue to try to shape policy.

By Francine Kiefer Staff writer

https://www.csmonitor.com/USA/Politics/2019/0723/California-s-lonely-Republicans-When-minority-status-means-irrelevance

To understand what it’s like to be a Republican in California today, spend some time in Huntington Beach.

In January, Democratic Gov. Gavin Newsom announced a lawsuit against this once solidly Republican community for violating a state law to allow more housing. The suit came on the heels of the city’s courtroom victory claiming exemption from California’s “sanctuary state” law – a ruling the state is now appealing.

The governor is “100%” singling out Huntington Beach, says Mayor Erik Peterson. The city’s attorney agrees, pointing out that 50 other cities have not fulfilled the housingmandate. “I believe they’re still upset that we beat them” on the sanctuary issue, says the mayor from his office, a surf board propped up in the corner. “Of course, we’re all racists because of that – that’s what they tell us. But it actually had nothing to do with illegal immigration. It had to do with the state’s overreach.”

Last year, Orange County, the cradle of California conservatism, lost four of its congressional seats to Democrats. Fewer than a quarter of California’s registered voters today are Republicans, and Democrats have a supermajority that renders the GOP powerless in the legislature. In recent months, Governor Newsom has cast Republicans as xenophobes and nativists, destined for the “waste bin of history.”

For many in the GOP here, it feels like they’ve been set out on the curb with the trash. In interviews, California Republicans describe themselves as “disenfranchised,” “lonely,” “a remnant,” and “not part of the conversation.”

Huntington Beach’smayorship is technically a nonpartisan position. But as a Republican in a deep-blue state, Mayor Peterson says he finds the situation increasingly “frustrating.” With no influence in Sacramento, Republicans can’t affect regulations, which he personally feels in his own business as an electrical contractor. They can’t block tax increases or effectively shape the budget, which just extended health care to young unauthorized immigrants. So, they resort to fighting through the courts, says the mayor. “It’s the only thing we can do.”

A common condition

Extreme minority status is a common condition in divided America. According to Ballotpedia, a single party has an absolute grip on power in 19 states, controlling the governorship as well as veto-proof majorities, orsupermajorities, in their legislatures. Democrats are powerless minorities in 16 such states, while Republicans are completely shut out in California, Oregon, and Illinois. Last month, Republican state senators in Oregon fled to Idaho to deny Democrats a quorum – and a vote – on a sweeping climate-change bill. The bill petered out, much to the delight of Republicans.

Wisconsin state Sen. Jon Erpenbach had a similar experience, though it didn’t end as well. In 2011, he and 13 fellow Senate Democrats went into exile in Illinois for three weeks in order to delay consideration of a major anti-union bill. The bill was being pushed by then-Gov. Scott Walker and the Republican-dominated legislature. Ultimately, the bill became law.

As a voicelessminority, “you feel very, very disenfranchised,” says Mr. Erpenbach. “You use every possible parliamentary tool to stop what they do, and 9 times out of 10, you lose.”

What distresses Mr. Erpenbach most is that Wisconsin is overall a purple state – but that parity is not reflected in the legislature because of gerrymandered voting districts. Voters last year elected a Democrat as a governor, restoring “balance” in government, as Mr. Erpenbach puts it, but not before the GOP legislature used a lame-duck session to restrict the incoming governor’s powers.

“Whether it’s the Democrats in a supermajority or the Republicans in a supermajority, it seems like the parties are just more concerned about 50.1% of the people – [that] enough people will elect them and keep them in a majority,” says Mr. Erpenbach.

As in California, the minority party in Wisconsin turned to the courts to try to remedy partisan redistricting and the diminished governorship. They’ve lost on both counts. Mr. Erpenbach says Democrats have no choice but to continue “plugging away” at the redistricting message, educating voters so that when representatives go home, they hear about it.

“It is what it is”

Republicans in California, meanwhile, can’t agree on how to restore their voice. It’s been a long decline – precipitated, many observers believe, by Republican Gov. Pete Wilson in the 1990s. He went against demographic trends and pushed anti-immigration measures. In the short term, it won him reelection, but it also drove Latinos into the arms of Democrats. Other factors also came into play, but with white people now a minority in California and Donald Trump in the White House, Republicans are struggling in this deeply blue state.

The state GOP needs to “stop fighting the culture wars” and instead present itself as a more “mainstream” party that focuses on pocketbook issues, as well as education and the environment, says Bill Whalen, former speechwriter for Governor Wilson. Republican consultant Mike Madrid blasts California Republicans for their “silence” on President Trump’s “racist tweets” about four Democratic women of color in the House.

On the other hand, Fred Whitaker, chairman of the Republican Party of Orange County, rejects the idea that Republicans should adjust their ideology.

“You can’t become the Democratic Party lite,” he says. Many Asians and Latinos are socially conservative, but fiscally liberal when it comes to larger government, he says. “Our job is to talk with every voter where they are, who align with our values, and see if we can’t bring them across.” The party must also field more candidates who look like the neighborhoods they come from, he says.

He and others believe that the state is headed for a financial crisis. It may have a surplus now, but it relies on high income taxes, and when the next recession hits, they say voters will see the error of their ways.

“Voters wanted a Democratic majority in statewide offices and in the legislature” – and now they have a high-tax state, with rising gas taxes and the highest rate of poverty in the nation, says Republican state Sen. John Moorlach, who represents Huntington Beach. “When a recession hits, it’s not going to be pretty.”

California’s Democrats won supermajority status last November. ButMr. Moorlach says he’s “not complaining” about his new situation. “It is what it is, que sera, sera.”

And he says at least Democrats have allowed him to have a voice, whether in committee or on the Senate floor. As vice chair of the powerful Energy, Utilities, and Communications Committee, he realizes he’s “pretty much a figurehead,” but he still contributes. Votes tend not to go the way he wants, but he has a chance to put things on record.

It’s not completely hopeless for Republicans, adds Marcia Godwin, a government expert at the University of La Verne in La Verne, California. Sometimes, bipartisan coalitions form in Sacramento when the liberal wing of the Democratic Party won’t go along, she says. And at the local level, “there’s still a fairly high amount of influence” in the areas where Republicans are concentrated, such as in Orange County.

Asked whether supermajorities in one-party states are bad for democracy – or simply a reflection of the will of the people, she replies: “What’s good for democracy is the possibility of change. Even if it’s not the next election, maybe 10 years from now, there might be change.”

That is the hope for Republicans in California. And for Democrats in red states, as well.

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