One More to Veto
As Governor Newsom considers signing or vetoing hundreds of pieces of legislation before the Oct. 13 deadline, allow me to suggest another veto-worthy bill. As it relates to adding debt, SB 268 (Wiener) will once again limit government transparency and prevent the public from knowing the true costs of bond measures when they appear on ballots.
It appears that Wiener’s bill comes as a reaction to a good government and open transparency bill, Assembly Bill 195, by Assemblyman Jay Obernolte (R – Big Bear), that required local officials to give more information on the cost of bond measures in the ballot summary.
Because local governments hated the idea of giving voters the true costs of the measures, Senator Wiener introduced SB 268. Here’s what CalMatters columnist Dan Walters said about the legislation now awaiting the governor’s signature (see https://calmatters.org/commentary/bill-reduces-ballot-measure-transparency/).
“Wiener makes no bones about his intent. He believes that Obernolte’s law would result in fewer tax and bond measures being passed and his legislation would allow officials to bury the required financial data in the fine print of voter guides, where it would be much less likely to be read.
“Thus, officials would be free once again to pump up their one-sided pitches in ballot summaries.”
California government at all levels should be doing more, not less, to ensure government transparency. If Governor Newsom believes in transparency, he should veto SB 268.
School District Ranking – Group 4 – #283 to #376
Welcome to the fourth of ten groups of 94 of California’s school districts ranked by the unrestricted net position divided by the district’s population served.
For the previous three groups, see:
Group 4 includes the following four Orange County school districts:
#320 Huntington Beach Union High, down 78
#333 Savanna Elementary, up 75
#352 Centralia Elementary, up 23
#360 Huntington Beach City Elementary, down 3
Taking a cursory look at Huntington Beach Union High, its Other Post-Employment Benefits (OPEBs) liability increased by $30.5 million. The pension liability increased by $32.5 million. This would explain a major portion of this district’s $72.8 million increase to its unrestricted net deficit. Wouldn’t you like to know this type of information from a school district before you voted to approve a bond measure?
Adding liabilities of this nature to the balance sheets of California’s 940 school districts increased the combined unrestricted net deficit by $20 billion in the last year alone.
25th Anniversary Look Back
Now that we’re on the topic of transparency. On September 26, 1994, Robert L. “Bob” Citron released his annual Treasurer’s correspondence to the Board of Supervisors.
It had been reported that, due to Mr. Citron’s difficulty with public speaking, the Supervisors recommended a written report instead. This one would be his last. It was five pages, with a one-page attachment providing cash balances and receipts and disbursements.
The mailing list of those who received the correspondence was a who’s who of Orange County financial advisers, broker/dealers, city and school district representatives, Orange County Employees Retirement System directors, prominent civic leaders, and County department heads.
Here are a few selected sentences, followed by my commentary:
Our average yield for the fiscal year of 7.74% can be favorably compared to the U.S. Treasury 30-year maturity bond average yield of 6.65% for the same fiscal year period.
Idle funds should be invested in short-term cash equivalents, similar to a money market fund, with durations averaging 90 days or less. On the short end of the yield curve, the yields are historically the lowest. Claiming that the Orange County Investment Pool (OCIP) was outperforming the 30-year Treasury should have been a major red flag to its participants.
The State of California Treasury with an average monthly balance of $25.449 billion had an average yield of 4.39%.
The State Treasurer’s Local Agency Investment Fund (LAIF) is a popular place for cities and counties to deposit surplus funds. To claim that the OCIP was outperforming LAIF by 335 basis points, or 76% higher, should have been another major red flag to participants.
In comparing these interest yields, it should be stated that the State investment pool average monthly maturity for the fiscal year was 392 days (one year, one month); whereas, the Orange County Treasury average monthly maturity was 834 days (two years, five months).
Shortly after Orange County filed for bankruptcy, the majority of municipalities around the nation reduced their average weighted maturity to less than 30 days! Exceeding a safe holding period by nearly 30 times was yet another major red flag.
The total interest earnings received and paid out from investments was an all time high of $665,868,000.
The massive percentage of overall County revenues represented by interest income was another red flag. It proved that when money talks, the truth is silent.
We continue to use Reverse Repurchase Agreements as part of our investment strategy. In the fiscal year just ended, we earned an additional $251,334,000 through Reverse Repurchase Agreements which is the equivalent of adding a 2% yield to our portfolio.
Does the warning that higher yields mean higher risks come to mind?
During the past year, concerns have been raised about investment funds taking “paper” losses which represent the difference between the original cost of securities and the current market value of those securities. In periods of rising interest rates, securities purchased one year ago are worth less today than when they were originally purchased. The losses are called “paper” losses because they are based upon accounting adjustments in which investment portfolios are adjusted to reflect current market values. An actual gain or loss would only be incurred if the investor sells the security prior to its maturity day.
Some investment funds regulated by the Securities and Exchange Commission (SEC) are required to periodically adjust the cost of their portfolios to reflect current market values which may result in a paper gain or loss. Governmental accounting standards do not require municipal investment pools to make this periodic adjustment. Therefore, we are not required to record “paper” gains or losses.
An actual investment gain or loss would only occur if we were to sell a security before its scheduled maturity date. Under our reverse repurchase investment strategy, we hold nearly all of our securities until maturity and rarely have recorded actual gains or losses.
You can hold to maturity if there is no reason to suspect that an early sale will be required. But, the OCIP had voluntary participants who could withdraw, theoretically, at any time (for how the city of Tustin was treated, see MOORLACH UPDATE — Presenting SB 689 Plus a Dozen More — April 17, 2019). And the OCIP had debt that could be called when the value of the investments dropped below the amount of the loan, thus requiring more collateral by the lender (for a discussion on marking to market, see MOORLACH UPDATE — Marking to Market — July 12, 2019).
In a section titled “The Future,” Citron spent two pages, single-spaced with only a few paragraph breaks, explaining the direction of interest rates, including old phrases about economists. But, the concluding paragraph hinted at cracks in the dike.
I do not at all in any way, pretend to be a professional economist. The rather successful high interest yields we have obtained in previous years (as stated here previously) would indicate that we have been able to interpret current and future markets to our advantage. Like economists, we are not always right. (Do you remember Henry Kaufman?) In last year’s Financial Statement, I said we would have the maintenance of low interest rates, that high interest rates were not sustainable. I and many others did not foresee the Federal Reserve taking their “preemptive strike.” There was not then, and there is not now, inflationary factors that would require the Federal Reserve to tighten credit by 1.75%, as stated previously by many economists. Former President Harry Truman once defined that a successful leader or business head made the correct decisions 80% of the time. I believe I and the great majority of those reading this report fall into this category. Where we may differ is that I realize that my decisions could be wrong as much as 20% of the time. This probability of error keeps me diligent to see that any miscalculations of economic conditions do not have an overly negative effect on our investors. We have constructed a well-balanced portfolio that we believe can withstand the impact of current interest rates. I believe that the many years of consistent positive results of our investment strategy indicates that our decisions have been correct much more than 80% of the time!
Citron’s report was released in mid-October. The Federal Reserve Board’s rate increases would continue, correlating closely to the 2-year Treasury yield increases occurring at the time. Being 80% right would morph into 100% wrong within a few weeks.
For my last LOOK BACK, see MOORLACH UPDATE — OC Register Coverage Look Back — September 16, 2019.
|Rank||School District||Population||Per Cap||2017||Chg|
|283||Trinidad Union Elementary||2,248||($496)||303||20|
|284||Soquel Union Elementary||27,555||($497)||277||-7|
|286||Julian Union High||4,837||($501)||334||48|
|287||El Monte Union High||178,636||($501)||276||-11|
|288||Cottonwood Union Elementary||8,764||($503)||339||51|
|290||Stanislaus Union Elementary||31,828||($507)||313||23|
|291||Chula Vista Elementary||301,936||($511)||374||83|
|292||Blue Lake Union Elementary||2,513||($513)||237||-55|
|293||Cascade Union Elementary||15,318||($514)||412||119|
|294||Perris Union High||176,496||($516)||368||74|
|296||Shasta Union High||102,753||($521)||301||5|
|297||Trinity Alps Unified||8,513||($521)||238||-59|
|300||Santa Clara Unified||155,963||($525)||312||12|
|301||Liberty Union High||115,068||($532)||315||14|
|302||San Luis Coastal Unified||95,568||($535)||349||47|
|303||Red Bluff Union Elementary||20,495||($538)||351||48|
|304||Loleta Union Elementary||1,538||($538)||279||-25|
|306||San Dieguito Union High||178,802||($543)||221||-85|
|308||Santa Rosa City Schools||293,661||($546)||319||11|
|309||Bennett Valley Union Elementary||9,917||($548)||326||17|
|311||San Mateo Union High||242,040||($557)||328||17|
|314||Los Olivos Elementary||2,017||($561)||485||171|
|315||Mountain View Whisman||71,425||($562)||366||51|
|317||Grossmont Union High||488,461||($565)||327||10|
|318||Santa Maria Joint Union High||150,667||($566)||341||23|
|319||Salida Union Elementary||21,000||($566)||370||51|
|320||Huntington Beach Union High||331,367||($567)||242||-78|
|321||Empire Union Elementary||27,056||($572)||396||75|
|322||Hughes-Elizabeth Lakes Union Elem||3,898||($578)||390||68|
|323||Oroville Union High||55,273||($580)||189||-134|
|324||Salinas Union High||180,541||($581)||321||-3|
|325||Mountain View-Los Altos Union High||115,648||($583)||369||44|
|326||Antelope Valley Union High||386,613||($587)||343||17|
|327||Mill Valley Elementary||32,070||($588)||427||100|
|329||San Ardo Union Elementary||792||($591)||398||69|
|331||Weed Union Elementary||3,950||($593)||206||-125|
|332||Tulare Joint Union High||82,517||($594)||283||-49|
|335||Janesville Union Elementary||3,184||($601)||364||29|
|337||Grass Valley Elementary||25,368||($603)||380||43|
|338||McKinleyville Union Elementary||15,531||($604)||354||16|
|340||Tracy Joint Unified||105,348||($606)||399||59|
|342||Happy Valley Union Elementary||6,093||($606)||231||-111|
|346||Butte Valley Unified||1,989||($615)||562||216|
|347||Hermosa Beach City Elementary||20,187||($615)||210||-137|
|349||South Fork Union||3,765||($616)||262||-87|
|351||San Rafael City High||78,740||($617)||352||1|
|353||Bangor Union Elementary||1,304||($619)||389||36|
|354||Placer Union High||95,262||($620)||404||50|
|355||Belmont-Redwood Shores Elem||43,812||($622)||243||-112|
|357||Black Oak Mine Unified||14,168||($624)||461||104|
|358||Roberts Ferry Union Elementary||615||($625)||459||101|
|359||Modesto City Schools||405,888||($626)||316||-43|
|360||Huntington Beach City Elementary||87,839||($627)||357||-3|
|361||Mark Twain Union Elementary||9,331||($628)||251||-110|
|362||New Hope Elementary||1,703||($629)||294||-68|
|365||Victor Valley Union High||168,238||($641)||451||86|
|366||Fortuna Union High||23,003||($642)||203||-163|
|368||Del Mar Union Elementary||44,619||($645)||654||286|
|369||Las Lomitas Elementary||12,190||($647)||225||-144|
|370||North Cow Creek Elementary||1,607||($647)||578||208|
|372||McCabe Union Elementary||7,075||($650)||388||16|
|373||Leggett Valley Unified||601||($652)||333||-40|
|376||Marcum-Illinois Union Elementary||868||($654)||415||39|
This e-mail has been sent by California State Senator John M. W. Moorlach, 37th District. If you no longer wish to subscribe, just let me know by responding with a request to do so.