MOORLACH UPDATE — Audit Results and Cities 337 to 384 — November 25,2019

Joint Legislative Audit Committee

Earlier this year I was appointed to the Joint Legislative Audit Committee.  It assigns audit projects to the State Auditor, Elaine Howle, and her staff and also holds hearings to receive their audit reports.

While serving as a County Supervisor, we retained a law firm to review the reserves established to address workers’ compensation settlements, as the County was self-insured.  A second look at these arrangements provided a substantial savings if renegotiation efforts were warranted and pursued.

Coming to the state, I started with reviewing similar arrangements at the California State University and University of California systems.  The UC risk management staff assured me that they had thoroughly scrubbed their reserves and were confident another review was not necessary.

I then requested an audit of other state departments and agencies to determine if there was a similar opportunity to obtain savings for taxpayers through appropriate resolutions with those who needed the medical services for their recoveries.

The audit found that, of the departments reviewed, none was self-insured like the UC system.  But, it did determine the state’s Human Resources Department had a master agreement with the State Compensation Insurance Fund that was less costly than purchasing policies directly.  Consequently, the State Auditor found that taxpayer money could be saved and the audit added value (see  http://www.auditor.ca.gov/pdfs/reports/2019-106.pdf.

The Orange County Breeze provides our press release in the piece below.

Cities 337 to 384

We’re at the bottom three segments and three Orange County cities are in this group:  Placentia (#368), Orange (#374) and Westminster (#377).

The city of Maywood has not released its June 30, 2018 Comprehensive Annual Financial Reports (CAFR), so its Unrestricted Net Position was determined on data trends.

The city of Chowchilla (#341) dropped 186 places for an odd reason.  Last year, we reported their 2016 Unrestricted Net Position of a positive $5.5 million because I had not yet seen their June 30, 2017 CAFR.  Their Unrestricted Net Position fell to $(13.9 million) in 2017, and has dropped even further as of June 30, 2018 to $(14.3 million). There was little change between the June 30, 2017 and 2018 balance sheets, as the city does not provide for lifetime medical benefits for its retired employees.  Consequently, its high ranking last year was overstated and the current position is reflective of its actual standing for both years.

Rank City Pop. UNP 2018 (Thou-sands) UNP/ Capita 2017 Rank Rank Change
337 Willows 6,064 ($4,471) ($737) 357 20
338 South Gate 98,133 ($72,433) ($738) 310 -28
339 Escondido 151,478 ($112,192) ($741) 356 17
340 Martinez 38,097 ($28,754) ($755) 279 -61
341 Chowchilla 18,835 ($14,269) ($758) 155 -186
342 Newark 47,467 ($35,997) ($758) 380 38
343 Chula Vista 267,503 ($206,083) ($770) 379 36
344 Brisbane 4,692 ($3,630) ($774) 368 24
345 Paradise 26,572 ($21,204) ($798) 320 -25
346 Salinas 161,784 ($133,797) ($827) 365 19
347 Bell Gardens 43,051 ($35,969) ($835) 208 -139
348 Chico 92,348 ($77,247) ($836) 378 30
349 Modesto 215,692 ($182,197) ($845) 390 41
350 Milpitas 74,865 ($63,406) ($847) 309 -41
351 Woodland 60,426 ($51,602) ($854) 406 55
352 Concord 129,159 ($110,302) ($854) 350 -2
353 Daly City 107,864 ($92,552) ($858) 348 -5
354 Bell 36,325 ($31,638) ($871) 372 18
355 Covina 49,006 ($43,430) ($886) 371 16
356 Los Alamitos 11,863 ($10,679) ($900) 328 -28
357 San Bruno 46,085 ($41,778) ($907) 394 37
358 Roseville 137,213 ($125,570) ($915) 297 -61
359 Marysville 11,883 ($10,888) ($916) 354 -5
360 El Cajon 105,557 ($97,584) ($924) 392 32
361 South Pasadena 26,047 ($24,210) ($929) 323 -38
362 Piedmont 11,318 ($10,521) ($930) 424 62
363 Glendale 205,536 ($195,007) ($949) 373 10
364 Seaside 34,270 ($32,746) ($956) 370 6
365 Baldwin Park 76,708 ($73,931) ($964) 288 -77
366 San Leandro 87,598 ($84,962) ($970) 388 22
367 Corte Madera 10,039 ($9,740) ($970) 414 47
368 Placentia 52,755 ($52,089) ($987) 349 -19
369 Fremont 235,439 ($236,792) ($1,006) 377 8
370 Nevada City 3,226 ($3,330) ($1,032) 375 5
371 Placerville 10,642 ($11,010) ($1,035) 397 26
372 Davis 68,704 ($71,631) ($1,043) 344 -28
373 South Lake Tahoe 21,892 ($22,863) ($1,044) 463 90
374 Orange 141,952 ($149,196) ($1,051) 367 -7
375 Petaluma 62,708 ($66,356) ($1,058) 393 18
376 Blythe 19,389 ($20,536) ($1,059) 363 -13
377 Westminster 94,476 ($100,942) ($1,068) 346 -31
378 Maywood 28,044 ($30,028) ($1,071) 399 21
379 San Luis Obispo 46,548 ($49,910) ($1,072) 389 10
380 Upland 77,017 ($83,165) ($1,080) 402 22
381 Millbrae 22,854 ($24,700) ($1,081) 382 1
382 Capitola 10,563 ($11,536) ($1,092) 405 23
383 Dinuba 24,873 ($27,286) ($1,097) 285 -98
384 Pacifica 38,418 ($42,616) ($1,109) 409 25

25th Anniversary Look Back

The Moorlach Memo continues with Chapter 8.  To make my point about what could be in the County of Orange’s near future, I used the very recent 1994 investment loss fiasco in Odessa, Texas as an example (also see  https://www.sao.texas.gov/SAOReports/ReportNumber?id=95-035).

I should mention that Peer Swan and I are now friends and both served on the Newport Bay Watershed Executive Committee, I as Chair and he as Vice Chair, during my eight years as Orange County Supervisor.

For the introduction and first seven chapters, see:

Intro — Context — MOORLACH UPDATE — Constitutionally Flawed Legislation — November 5, 2019.

Chapter 1 — Introduction — MOORLACH UPDATE — Business, Electricity and Top 48 Cities — November 7, 2019

Chapter 2 — Hold to Maturity — MOORLACH UPDATE — 3P, Cities 49 to 96 and Holding to Maturity — November 12, 2019

Chapter 3 — We Do Not Mark To Market — MOORLACH UPDATE — Measuring Insincerity and Cities 97 to 144 — November 13, 2019

Chapter 4 — Prognosis —  MOORLACH UPDATE — Officers, Audits, CIRM and Cities 145 to 192 — November 14, 2019

Chapter 5 — Current Media Revelations —  MOORLACH UPDATE — SB 640 and Cities 193 to 240 — November 18, 2019

Chapter 6 — Scaring Credit Markets — MOORLACH UPDATE — PSPS and Cities 241 to 288 — November 19, 2019

Chapter 7 — Borrowing to Invest — MOORLACH UPDATE — 2020-21 Budget and Cities 289 to 336 — November 21, 2019

ODESSA  

How about another recent real life example?  The Finance Chief of Odessa Junior College in Odessa, Texas, also dabbled in “inverse floater” derivatives.  But he did it big time. The results? According to the “Wall Street Journal,” the college lost half of its $21.9 million in resources this year!  “The money included not only the college’s long-term investment funds but also the proceeds of bond sales, payments from the state, tax revenues, tuition payments, even funds belonging to the alumni booster club.”

What were the consequences?  “The college, unable to pay its bills, has been forced to borrow $10.5 million on an emergency basis, has increased tuition 20% and has raised real-estate taxes on local property owners 7.2%.  At the same time, it has slashed its operating budget to $16 million from $18 million. Twenty-two senior professors have been given early retirement to save $850,000 in salaries, and Odessa’s president for 20 years, is forgoing his $122,500 salary.  Faculty travel has been all but eliminated.”  Get ready Orange County.

If interest rates don’t go down soon, returning to their October 1993 lows, Citron and Swan will have serious explaining to do.  It is one thing to be an investor. To use a small amount of margin makes you a speculator. But to borrow three-fold makes you a gambler, a financial maniac, someone who has converted our tax dollars into poker chips.

Moorlach responds to audit finding State agencies overpaying for Workers’ Compensation Insurance

http://www.oc-breeze.com/2019/11/25/148539_moorlach-responds-to-audit-finding-state-agencies-overpaying-for-workers-compensation-insurance/

Senator John M. W. Moorlach (R-Costa Mesa) issued the following statement today after the California State Auditor, directed by the Joint Legislative Audit Committee, released an audit finding at least 10 state agencies purchasing Workers’ Compensation Insurance from State Compensation Insurance Fund (State Fund), a nonprofit enterprise established by the California Legislature in 1914, are paying millions of dollars more than necessary to provide benefits to their employees.

“Given today’s concerning news, I appreciate the analysis done and the report prepared, as well as agree with the recommendations by the office of California State Auditor Elaine M. Howle, CPA.

“First, the California Department of Human Resources (CalHR) should provide a benefit analysis comparing the cost of obtaining workers’ compensation insurance through the Master Agreement vs purchasing directly from State Fund. I commend CalHR for agreeing to implement the Auditor’s recommendation.

“Second, the California Legislature should grant CalHR the authority to obtain the necessary data to compare insurance versus master agreement costs.

“Third, State Fund needs to create a policy for ‘to provide settlement authorization requests to agencies at least 30 days before settlement conferences.’ State Fund failed to achieve this for eight of the 15 claims the auditor reviewed. I call on State Fund to reconsider this request and implement the policy.

“Lastly, a review of rates paid to qualified medical evaluators should be considered.”

California State Auditor Report 2019-106 was conducted at the request of Senator Moorlach. A sample of 10 of the 32 agencies that purchase insurance through State Fund was audited and found to have paid an average of $5.7 million per year in premiums. These 10 agencies could have used the recommended Master Agreement to save the state $20 million during the period reviewed from fiscal year 2013-14 through fiscal year 2017-18. It is possible the opportunity costs could be three times that if the 32 agencies following the same practice were also audited.

This article was released by the Office of Senator John Moorlach.

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