MOORLACH UPDATE — Local Debts Versus State Surplus — July 29, 2019

With the requirement by the Government Accounting Standards Board to include the unfunded actuarial accrued liability for retiree medical for the fiscal year ended June 30, 2018, many municipalities have been slow to release their annual outside independent audits, as they have been waiting for actuarial reports. Although we’re still waiting for a number of Comprehensive Annual Financial Reports (CAFRs) from several of California’s 482 cities, we do have them from all 34 of Orange County’s cities. For states, I’m still waiting for Illinois. For California’s counties, it’s Modoc.

Some cities started recognizing this unfunded liability a year or so earlier than this year’s deadline. Most have reflected information in the disclosures and footnotes accompanying their annual audited financial statements. Unfortunately, amounts that should be on the balance sheet, but are not, can be difficult to understand for a layperson when reviewing a one-inch thick financial report.

The metric I’ve been using over the years is very simple. Take the Unrestricted Net Assets or Unrestricted Net Deficit from the Basic Financial Statements for Governmental Activities and divide that number by the population of the municipality. The populations are provided by census data and other sources.

I’ve already provided the 2018 rankings for California’s Community College Districts (see MOORLACH UPDATE — Recognizing Movement — June 7, 2019). Since there was so much movement in the college rankings, I included the number of positions, up or down, each District had moved.

I’ve done the same for Orange County’s cities in Table 1 below.

There is movement in the listing, but the top 16 cities are still the top 16 cities, and the bottom 11 cities are still the bottom 11 cities. In the middle of the pack, the city of Los Alamitos made a significant improvement in the standings, moving from 22 to 17.

Due to the now-required inclusion of the retiree medical liability, Table 2 provides the change, year-over-year, of the approximate journal entry that had to be made. This is shown in the first column. I have ranked the 34 cities in the order of the magnitude of the added liability to each balance sheet.

The cities of Mission Viejo and Stanton overfunded their retiree medical commitment and show them as assets. Four cities actually had net increases in their funding toward the retiree medical liability in the past year (new actuarial costs less funds set aside). One city has shown no liability in 2017 or 2018 for its Other Post Employment Benefit (OPEB).

The legacy cities, those either incorporated for some time and/or having both their own police and fire departments, have had to reflect sizable liabilities. In fact, combined, Orange County’s cities have added nearly a half-billion dollars of debts to their balance sheets this past year just for OPEBs.

The year-over-year change in the combined Unrestricted Net Deficit for Orange County’s 34 cities has risen $631 million in the last year. This is reflected in the second column of Table 2. Consequently, overall the retiree medical liability inclusion of $469 million represents three-quarters of the cumulative negative growth of net assets in Orange County.

We should be thankful, as the Los Angeles Unified School District had to add $15 billion to its liabilities, making for a dismal balance sheet (see MOORLACH UPDATE — $15 Billion Obligation — December 27, 2018).

Every city has a different story. A dozen cities have improved their Unrestricted Net Position in the last year, in spite of the retiree medical recognition. Using the city of Anaheim as an example, the retiree medical was the major cause of its Unrestricted Net Deficit increase.

The data are from the Comprehensive Annual Financial Reports for June 30, 2018 and June 30, 2017, provided on each city’s websites. The data provide an objective metric, from audited financial statements, to see what the range is and where city leadership can pursue improvements.

California’s Governor has enjoyed spreading around a $21.5 billion “surplus,” yet California’s cities have not enjoyed the same personal income tax largess. Cities rely mostly on property and sales tax revenues, which have not seen the same growth as the state’s income tax revenues. Moreover, the state has not seen fit to spread much of the wealth with its counties, cities and school districts. You can understand why cities have been putting sales tax rate increases on their local ballots (see MOORLACH CAMPAIGN UPDATE — OC Ballot Measures — October 17, 2018).

Finally, if the state’s tax appetite were not enough, it is still raising taxes, mostly on basic necessities, like cellphone lines. This will mean less disposable income for residents to purchase items subject to sales tax or to move up into a larger home as the property tax increase will be too costly. This will not be a good trend for Sacramento’s subsidiary municipalities and the OC Register provides a dialogue on the subject in the column provided in Sunday’s Commentary section below. It sets the table for the provision of the local data provided directly below.

Table 1

Rank June 30,2018 Per Capita Rank June 30, 2017 Per Capita Change
1 Tustin $1,835 1 Cypress $1,805 1
2 Irvine $1,601 2 Tustin $1,754 1
3 Laguna Beach $1,540 3 Irvine $1,624 1
4 Cypress $1,517 4 Laguna Beach $1,159 -3
5 Laguna Niguel $1,035 5 Laguna Niguel $1,154 0
6 Dana Point $733 6 Lake Forest $677 1
7 Lake Forest $698 7 Dana Point $668 -1
8 Laguna Woods $599 8 Laguna Woods $595 0
9 Aliso Viejo $564 9 La Palma $566 1
10 Villa Park $491 10 Aliso Viejo $534 2
11 La Palma $481 11 Yorba Linda $423 -2
12 Yorba Linda $447 12 Villa Park $421 -1
13 San Clemente $361 13 San Clemente $350 0
14 Rancho Santa Margarita $353 14 Stanton $321 1
15 Stanton $330 15 Rancho Santa Margarita $287 -1
16 Mission Viejo $181 16 Mission Viejo $211 0
17 Los Alamitos $120 17 Laguna Hills $105 5
18 Laguna Hills $93 18 Seal Beach $83 -1
19 San Juan Capistrano ($165) 19 San Juan Capistrano ($6) 0
20 Seal Beach ($189) 20 Buena Park ($348) -2
21 La Habra ($584) 21 La Habra ($446) 0
22 Garden Grove ($631) 22 Los Alamitos ($487) 1
23 Buena Park ($697) 23 Garden Grove ($491) -3
24 Placentia ($987) 24 Westminster ($565) 1
25 Orange ($1,051) 25 Placentia ($583) 2
26 Westminster ($1,068) 26 Fountain Valley ($689) -2
27 Fullerton ($1,179) 27 Orange ($738) 1
28 Huntington Beach ($1,256) 28 Fullerton ($868) 1
29 Fountain Valley ($1,288) 29 Huntington Beach ($1,128) -3
30 Newport Beach ($1,374) 30 Santa Ana ($1,134) 2
31 Santa Ana ($1,482) 31 Anaheim ($1,145) -1
32 Anaheim ($1,545) 32 Newport Beach ($1,269) -1
33 Brea ($1,740) 33 Brea ($1,312) 0
34 Costa Mesa ($1,949) 34 Costa Mesa ($1,419) 0

Table 2

Rank City Retiree Medical
Change YoY
Change YoY
1 Mission Viejo $809,563 ($2,946,000)
2 Laguna Niguel $348,661 ($224,000)
3 Stanton $232,215 $295,000
4 San Juan Capistrano $53,741 ($3,741,000)
5 Laguna Hills $0 ($359,000)
6 Laguna Woods ($12,092) $233,000
7 Aliso Viejo ($40,354) $2,429,000
8 Villa Park ($92,999) $237,000
9 Lake Forest ($194,027) $1,731,000
10 Rancho Santa Margarita ($422,899) $3,467,000
11 San Clemente ($975,558) $545,000
12 La Palma ($1,055,124) ($1,379,000)
13 Dana Point ($1,203,785) $1,876,000
14 Laguna Beach ($1,598,059) $816,000
15 La Habra ($3,094,000) ($5,056,000)
16 Los Alamitos ($3,710,480) ($4,962,000)
17 Cypress ($4,717,348) ($13,847,000)
18 Irvine ($4,933,000) $8,499,000
19 Tustin ($5,159,284) $6,676,000
20 Seal Beach ($5,662,789) ($7,134,000)
21 Buena Park ($5,782,282) ($29,346,000)
22 Huntington Beach ($7,866,000) $8,346,000
23 Garden Grove ($10,175,285) ($24,906,000)
24 Orange ($13,681,913) ($45,286,000)
25 Fullerton ($14,200,984) ($46,475,000)
26 Brea ($15,759,208) ($20,953,000)
27 Yorba Linda ($17,460,790) ($27,933,000)
28 Placentia ($22,847,375) ($19,309,000)
29 Newport Beach ($24,201,323) ($12,043,000)
30 Fountain Valley ($31,602,037) ($34,231,000)
31 Westminster ($39,487,411) ($48,050,000)
32 Santa Ana ($47,157,171) ($114,372,000)
33 Costa Mesa ($49,152,118) ($62,853,000)
34 Anaheim ($138,177,000) ($140,994,000)
   Total ($468,978,515) ($631,249,000)


Surpluses distract from big debts


During a recent meeting with allied organizations concerned about California’s high taxes, the question on everyone’s mind was: why do our political adversaries continue to push for even more taxes given that the state has a huge budget surplus? Also, how much excess revenue is there?

But like most questions involving public policy – and particularly those related to fiscal issues – the question quickly begot more questions. For example, what’s the difference between a surplus and a reserve? Also, should we look at just the general fund or should we expand the inquiry to special funds as well?

If one includes reserves from special funds and adds them to the generally accepted figure of the surplus, the answer is stunning. General fund reserves exceed $20 billion and special fund reserves exceed $16 billion. In short, California is sitting on over $36 billion. This doesn’t even include the billions kept in reserve by local governments.

So with all this good news, why do the state and local governments continue to press for ever higher taxes? The answer — which they prefer to conceal from the taxpaying public — is that they know that the bill will soon be due for all the accumulated government debt.

A large budget surplus provides a grossly incomplete picture of the fiscal health of a state, city or county. A budget is more like an income statement. The revenues exceeding expenditures in any given year do not reflect liabilities in the way that a balance sheet would. For example, if a family sees an increase in take-home pay because mom or dad got a raise, that obviously has a positive effect on the family budget. But if they are still losing ground every month because of a big mortgage that they can’t afford, one can’t conclude that the family is financially stable.

Public debt is the dark cloud hanging over all levels of government. At the national level, the economy is booming, unemployment is at record lows and the stock market seems to hit new highs on a daily basis. But few people are talking about the national debt. The Obama administration added more than $10 trillion to the national debt and, regrettably, the Trump administration is on a pace to match it. In the hyper-partisan environment that is Washington, where Republicans and Democrats disagree on just about everything, it is troubling that both parties have quietly agreed to increase the national debt limit while increasing spending.

The problem for California is that, unlike the federal government, it can’t print money. One estimate of total government debt for California exceeds a trillion dollars. Even if that estimate is at the high end, there is no disputing that, sooner or later, we will have to satisfy all the legally binding promises our political leaders have made to various interests. This includes all bond holders and, of course, all the public employee retirees who are the beneficiaries of some of the most generous pension plans in the nation.

If there is a silver lining to this story it is that some political leaders and pundits are shining a brighter light on the debt issue. Even former Gov. Jerry Brown was able to secure some minor pension reforms, and a recent court ruling opened the door to further reforms. Sen. John Moorlach, R-Costa Mesa, the CPA who blew the whistle on Orange County’s pending bankruptcy more than a decade ago, has exposed the dangerous path that the state and local governments are on and is receiving well-deserved recognition for his work. Finally, new accounting rules promulgated by the Government Accounting Standards Board (GASB) have made it easier for the media and citizen activists to determining the true financial health of their local communities.

The upshot of all this is that there needs to be greater focus on managing debt because as good as budget surpluses may appear, they will disappear in a heartbeat when — not if — we have a severe recession.


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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

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


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

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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MOORLACH UPDATE — Bills to Watch After the Summer Break — July 20, 2019

The California Legislature is out for its summer recess. So, it’s a good time to catch you up on how six of my 2019 bills are doing. The Orange County Breeze was kind enough to publish our status report in the first piece below. Session starts again on August 12th and concludes on September 13th. It will be a very busy five weeks and I hope to get all of these bills to the Governor’s Desk.

The second piece is from the OB (Ocean Beach) Rag and covers the topic of charter schools from the perspective of someone who is not favorable to them. All the same, it is a thoughtful piece from a former public school teacher. I’m invoked because of my school rankings, which were released last year for the fiscal year ending June 30, 2017. (With 944 school districts, we are still waiting for a few Comprehensive Annual Financial Reports and hope to get the June 30, 2018 school district rankings out soon.)

My ranking is agnostic. It only takes two metrics in order to create a range. It does not provide any details as to why or where a school district placed in the rankings. However, I’m very skeptical that charter schools would be a major contributing factor to a district’s standing.

Managing an organization and determining why it is not performing well requires an analysis of three areas of causation: mismanagement, misjudgment, and misfortune. For school districts, it could be a combination. Granting lifetime retiree medical benefits, a promise that appeared to have minimal costs when first implemented, has grown into a major liability, as the cost rises with each passing year. Granting attractive defined benefit pension plan formulas is also coming home to roost (see MOORLACH UPDATE — Fast Track for Charter Schools — February 22, 2019).

Parents requesting more charter schools is a symptom of the poor management and the disappointing product California’s public schools are providing. It is particularly detrimental to parents, especially those of color, who want to have their children succeed (see MOORLACH UPDATE — May Revision 2019-20 — May 10, 2019). Maybe this is why so much money is pouring into pro-charter campaign coffers — to provide for better educational opportunities.

But, the anti-charter school rumblings have been growing stronger this year (see MOORLACH UPDATE — LAUSD and Future Concerns — January 24, 2019). And closing down charter schools has been basically a union ploy, as charters do not have teacher union involvement (see MOORLACH UPDATE — Casting Shadows — January 4, 2019 and MOORLACH UPDATE — State Budget Torpedo — January 1, 2019).

That some charters are defective and need to shut down is not a valid argument. One of the benefits of charters is the worst can be shut down fairly easily, in contrast to traditional public schools, which are nearly impossible to shut down, even after former Sen. Gloria Romero’s “parent trigger” law was enacted in 2010.

The author did make the small mistake of including Senator Steve Glazer in an Assembly Floor vote, which is incorrect. Senators do not vote on the Assembly Floor and vice versa.

The charter school controversy is far from over. And, with the teachers’ unions having them as a big target for reform, it should also make the final weeks of Session all the more dramatic.

Six Moorlach bills in Assembly

Six of Senator John M. W. Moorlach’s bills are making their way through the Assembly. All have passed their first committees and head to either the Assembly Appropriations Committee or the Assembly floor for a vote.

Senate Bill 359, Municipal Referendum Petitions, passed in the Assembly Elections and Redistricting Committee by a 6-0 vote and now heads to the Assembly Appropriations Committee. This bill creates an additional simplified, cost-effective referendum methodology for parties who are interested in overturning an ordinance passed by a city council.

Senate Bill 598, Open Financial Statements Act, passed in both the Assembly Accountability & Administrative Review Committee and the Local Government Committee by unanimous consent. It now goes to the Assembly Appropriations Committee. This bill takes the first step to modernize California’s municipal financial reporting practices. It creates the Open Financial Statements Commission to evaluate the feasibility of transitioning municipal financial reports to a machine-readable format, known as iXBRL (inline eXtensible Business Reporting Language). Over 1,500 public entities prepare annual financial statements, independently audited, and submitted to the State Controller. The entities submit reports as a PDF, either in a text-searchable format or as scanned physical documents, producing data difficult to extract and analyze. SB 598 will work towards updating how we track taxpayer dollars by switching to a more accessible, efficient, and user-friendly system already familiar to publicly traded corporations.

Senate Bill 754, HOA Elections by Acclamation, passed the Assembly Housing and Community Development Committee by an 8-0 vote and now heads to the Assembly Floor. This bill provides for the election of board members by acclamation if the number of candidates seeking election is equal to or fewer than the number of board seats available. Limited qualifications are imposed on nominees and apply if there are 6,000 or more units within the homeowners association (HOA) community. Reducing unnecessary HOA elections can save residents significant costs. Like many municipal, special district and school board elections, HOAs should also be eligible for the same election by acclamation when mailing out ballots would be redundant.

Senate Bill 184, Judicial Fairness Act of 2019, passed the Assembly Accountability & Administrative Review Committee by unanimous consent and now goes to the Assembly Appropriations Committee. This bill would repair a cliff vesting penalty in the Judicial Retirement System II (JRS II) giving an option for judges to leave the bench earlier than planned with the requirement that they defer their public pension until they are eligible. No judge will receive a larger pension, nor does any judge receive a defined benefit payout any sooner than if the judge had remained on the bench to the mandatory minimum retirement age of 65 (with 20 or more years of service) or age 70 (with five or more years of service). It also allows the California Public Employee Retirement System to charge a reasonable fee to cover the administrative costs to the system.

SB 496, Protections Against Financial Abuse of Elder and Dependent Adults, passed the Assembly Aging and Long-Term Care Committee by a 12-0 vote, and the Assembly Judiciary and Appropriations Committees on consent. It now heads to the Assembly Floor for one final vote before it reaches the Governor’s desk. This bill gives financial industry participants and state regulators new tools to help detect and prevent financial abuse of vulnerable adults. Specifically, it would expand the category of mandated reporters and authorize the notification of trusted contact persons. It would also allow the temporary delay of requested disbursements and transactions if abuse is suspected and require the sharing of records related to exploitation with law enforcement, state adult protective services agencies, and the Department of Business Oversight.

SB 535, Tracking Greenhouse Gas Emissions from Wildfires, passed the Assembly Natural Resources Committee and now goes to the Assembly Appropriations Committee. This bill would require the Air Resources Board (ARB), in consultation with the Department of Forestry and Fire Protection, to submit a comprehensive report every three years. The report would include (1) information on greenhouse gas, criteria air pollutant, short-lived climate pollutant emissions from wildfires and forest fires, (2) an assessment of increased severity of wildfires and forest fires from the impacts of climate change, and (3) a calculation of the increase in the emissions of criteria air pollutants, greenhouse gases, and short-lived climate pollutants based on the increased severity of wildfires and forest fires assessed. The ARB would also determine what information from the report should be included in future iterations of the Assembly Bill 32 (Nunez, 2006) Scoping Plan.

This article was released by the Office of John Moorlach.

Reforming California’s Dysfunctional Charter School Law

By T. Ultican

Members of the California legislature have engaged in an internecine battle over charter schools. Even the California Charter Schools Association (CCSA) has expressed concern over lawless cyber charters and filed the first known complaint with the California Department of Education over A3 Education and Valiant Prep which were recently charged with stealing a stunning $50 million.

California State Sen. John Moorlach (R) is warning that 85% of school districts in California are running deficits. Governor Gavin Newsom has stated “rising charter school enrollments in some urban districts are having real impacts on those districts’ ability to provide essential support and services for their students.”

The drive to privatize schools in San Diego, Oakland and Los Angeles has been fueled by enormous sums of money spent on elections.

Billionaires led by Eli Broad and Richard Riordan have successfully installed a former investment banker – a proponent of school privatization with no education experience – as Superintendent of Schools for Los Angeles. In Oakland, hundreds of thousands of dollars have been donated to pro-privatization independent expenditure committees and a similar amount has been donated directly to charter friendly candidates running for that city’s school board. Very few of the donations come from Oakland. The story is similar in San Diego.

With so many extremely wealthy individuals like Michael Bloomberg from New York City, Stacy Schusterman from Tulsa, Oklahoma and Alice Walton from Bentonville, Arkansas continually making six and seven figure donations to privatize public schools in California, the defenders of public education are fighting with all they have against what they see as an undemocratic attack by oligarchs. At the same time, many charter school leaders are feeling insecure and under attack.

It is this Gordian Knot that legislators are addressing. As Upton Sinclair observed, “It is difficult to get a man to understand something when his salary depends on not understanding it.”

California’s new Democratic governor does not seem as mindlessly pro-charter school as the outgoing Democrat but his long time backers and chief of staff have public school advocates concerned. The Sacramento Bee reported “Gavin Newsom turns to top Hillary Clinton adviser to launch administration.” That would be his Chief of Staff, Ann O’Leary, whose Fortune magazine biography says she was a key voice in creating the No Child Left Behind (NCLB) law. She defends NCLB stating, “We were committed to high standards and helping states get there.”

For those of us working in classrooms in 2001, it became clear that O’Leary’s education ideology harmed students and facilitated privatizing public schools. Her theory comes from the neoliberal business mindset that venerates market based solutions and competition. The writer Anand Giridharadas recently labeled this philosophy “MarketWorld.

Leading up to the 2018 general election, the Los Angeles Times ran an in-depth article about the eight elite San Francisco families that have funded Newsom’s political success. Although his own family was not particularly wealthy, they did provide him with connections to the wealthy elite. The Times story included,

“He has said he was primarily raised by his mother, who at times struggled to make ends meet. But Gordon and Ann Getty viewed him as a son, according to interviews the couple gave to the San Francisco Chronicle and W Magazine, and they provided him with experiences his parents could not afford, including an African safari when he was a teen, Newsom said in an earlier interview with The Times.

‘“It all goes back to the Gettys as far as Gavin is concerned,’ said Jerry Roberts, former managing editor of the San Francisco Chronicle and an expert on Bay Area politics.”

The Getty’s are the heirs of John Paul Getty. However, of the eight families described in the Time’s article it is the Fishers and Pritzkers that most concern public school advocates. Doris Fisher and her late husband Don founded The Gap. They were the first major contributors to KIPP charter schools and Don was a cofounder of the Charter School Growth fund. Doris continuously contributes to efforts for privatizing public education. The Fisher family has provided more than $300,000 in contributions to Newsom since 1998.

The Pritzker family are heirs to the Hyatt Hotel empire. Penny Pritzker was Barack Obama’s campaign treasure and his Commerce Secretary. As Secretary of Commerce, she used the Malcolm Baldrige award to promote charter schools in the mall. In Chicago, the family financed a charter school called Pritzker College Prep which is part of the Noble Network of Charter Schools. Since 1998, the Pritzker family has donated more than $600,000 to Newsom.

Legislature Takes on the Issue

Four bills were introduced in February aimed at reforming the charter law. Newly elected Senator María Elena Durazo from Los Angeles submitted SB 756 for a moratorium on new charters. Over at the assembly education committee three reform bills were presented AB 1505, 1506 and 1507. AB 1506 would have introduced a new meaningful cap on new charter schools. In May, both SB 756 and AB 1506 were pulled by their respective authors. The Los Angeles School Report said,

“On Wednesday, Sen. Maria Elena Durazo sidelined the Senate moratorium bill, which she authored. The bill would have placed a two-year halt on new charter schools in the state unless the Senate passed further regulations. The measure could return for consideration next January, according to Senate rules.

“The next day, Assemblyman Kevin McCarty opted to hold his bill on the last day it was eligible for a vote in the chamber. AB 1506 would have mandated a statewide cap on charter schools…”

Now the battle is centered on AB 1505 and AB 1507. 1505 increases local control over chartering and reduces rights of appeal and 1507 bans charters not authorized by the district in which they operate.

On July 9th, EdSource reported, “Governor’s team jumps into fray over contested charter school bill.” It said,

“On Wednesday, the Senate Education Committee held a hearing on Assembly Bill 1505, which included a substantial number of amendments that Newsom’s office submitted after numerous discussions between his advisers and representatives of charter schools, organized labor and the bill’s author, Assemblyman Patrick O’Donnell, D-Long Beach, according to sources familiar with the discussions.

“With the final vote expected at day’s end, Senate Education Committee Chairwoman Connie Leyva, D-Chino, characterized the amended bill as ‘the makings of a deal with the governor’s office’ and said she is ‘cautiously optimistic’ that remaining issues can be resolved over the summer for passage in the fall.”

Scholar and former US assistant Secretary of Education, Diane Ravitch, reacted to this news with a post on her blog titled, “California: Is Governor Gavin Newsom Selling Out to the Charter Industry?” Diane points out that the one thing the charter Industry has going for it is money. She noted that politicians are always in search of money for their next campaign and says, “Big donors always find open doors.”

Back in the Education Committees

The Assembly Education Committee chairman is Patrick O’Donnell a 20-year classroom teacher who worked mostly in middle school. He is leading AB 1505 through the difficult legislative process. The authors of the bill are San Jose Assembly member Ash Karla and East Bay Senator Nancy Skinner who are both representing areas suffering at the hands of the charter industry.

The other bill still alive is AB 1507 which blocks districts from authorizing charter schools out of their own boundaries. Assembly members Patrick O’Donnell, Kevin McCarty and Christy Smith authored this bill.

The Assembly Education Committee has seven members; five Democrats and two Republicans. One of the first big hurdles for these two bills came at an April 10th hearing. It was the first opportunity to keep these bills alive or kill them. Charter school supporters came out in droves to talk the bills down. It was during this hearing that Assembly member Shirley Weber from San Diego said “since the four coauthors are here this is a done deal.” Weber also said she did not think these bills addressed the right issues and announced she would not be supporting them. Interestingly, Weber did not vote against the bill, she just didn’t vote. The bills passed out of committee by a vote of 4 to 1 with the lone descent coming from the only Republican in attendance Kevin Kiley.

There was a similar dynamic when these bills finally arrived at the Senate Education Committee this July. The Senate Committee is also a seven member committee with five Democrats and Two Republicans. Democratic Senator Steven Glazer said “781 public schools in the state have poor performance” and “We have failures all across the state.” Like Weber he was not satisfied with the content of the bills and said we need to worry about too many students in failing schools. Glazer did not make clear what he based his failing schools charges on. However, the charges by the Contra Costa Senator are similar to the charges made by leaders of the school privatization movement like the current US Secretary of Education, Betsy DeVos.

Both AB 1505 with the Governor’s amendments and AB 1507 were voted out of the Senate committee by identical 4 to 3 votes. The two Republicans and Glazer were the no votes.

Possibly Weber and Glazer agree with DeVos and her choice advocacy and that is why privatizing money is going to them or did they take this anti-public school position to attract that money? In any case, privatization money is flowing their way.

Data from California Secretary of State Glazer ID #1377665 and Weber ID #1393376

When these two bills went to the Assembly for a floor vote, every Republican voted no or didn’t vote. Weber didn’t vote and Glazer joined two other Democrats voting no. The final tallies were AB 1505 44 yes 19 no with 17 not voting and AB 1507 54 yes 18 no with 8 not voting.

As a child growing up in a Republican community in Idaho, I remember Republicans as being very pro-public education and suspicious of big business and big centralized government. What happened to my grandfather’s Republican Party? How can it be that not one Republican during any of the votes taken supported protecting our public schools from plunder by large charter management organizations or stood against the demise of Democratic local control of schools?

If we consider the development of political action committees (PAC) for privatizing public school, the anti-democratic nature becomes stark. If your holdings are $2 or $3 billion, then you are generating at least $100 million income every year. So, donating $1 million to four PACs is not a strain. That means besides creating a huge pot for independent expenditures, the 4 PACs will also send 4 more max donations to your favored candidates. No matter how bad the idea being pushed, this kind of spending gives it consideration and drowns out opposition.

The Bills and Amendments

Former State Sen. Gary Hart, a Democrat who represented Santa Barbara in the Assembly and Senate for 20 years, authored the original 1992 California charter school law. Sue Burr, a current member of the State Board of Education, played a major role in drafting it. EdSource interviewed Sen. Hart last year. Reporter John Fensterwald noted that the financial impact on a district was not part of the law and asked, “Was it brought up at the time?” Hart replied,

“I don’t think so. The law didn’t have large-scale financial ramifications. We were talking about 100 charters statewide.”

The original law capped charter schools at 100 statewide. In 1998, the cap was raised to 250 with a 100 schools a year escalator thereafter. Today, there are 1310 active charter schools in California and the current cap statewide is 2,250 for the 2018-19 school-year. Neither this uncontrolled growth with essentially no cap nor its financial implications were addressed in the original law.

As originally proposed, AB 1505 would have given all school districts broad authority to reject a charter school’s application and renewal after considering the financial impact on neighborhood schools and the district. That provision has been restricted to just school districts already certified as being in financial crisis.

The amended version also sides with charter schools in changing the language back to “shall” issue a charter to a petitioner who met the state requirements from the less demanding “may” issue the charter.

None of Governor Newsom’s amendments are more demanding on the charter industry, most make things easier on the industry and some of them smack of favoritism. For example, while Mayor of Oakland; Jerry Brown created a military charter school with the National Guard. The following amendment seems written for the benefit of that one school.

“Notwithstanding any other law, a charter school in operation as of July 1, 2019, that operates in partnership with the California National Guard may dismiss a pupil from the charter school for failing to maintain the minimum standards of conduct required by the Military Department.”

The Oakland Military Institute had tried during its reauthorization to be allowed to dismiss students who had too many demerits. The Chartering Authorities rejected the request. They felt that demerits were given for such minor offenses as not having a badge sewn on correctly and that a student should only be dismissed from a public school in extreme circumstances. Now the charter school’s questionable request is written into the amended law.


Money is still ruling but even the watered down bills as amended are better than what we have now, so it is important to keep pushing for their passage.

A parent and fellow Bay Area resident named Jane Nylund wrote a letter to Newsom expressing her disappointment at his amendments. Diane Ravitch posted the letter. I encourage you to read the whole letter. It makes many strong points. Jane personalized the letter noting,

“You and I have something in common-we both attended well-resourced public high schools. You went to Redwood High School in Marin, and I attended Miramonte High School in Orinda, located in what is now one of the wealthiest suburbs in the East Bay. Lucky us.

“The irony regarding your potential alliance with privatization groups like CCSA is that, because of your severe dyslexia, you would have been rejected by the same schools that are now being touted as “high quality seats”, aggressively marketed as superior to real public schools because of test scores. According to the bio I read, you were rejected from a private prep school and enrolled in your local public high school instead. So you have first-hand experience with the idea that real public schools enroll all children, not just the easy ones.”


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MOORLACH UPDATE — More Housing — July 17, 2019

This year has been busier than the previous ones in Sacramento. And that’s saying something. It’s hard to determine what has been the hottest topic, as there are so many. But, the high cost of housing would be near the top.

Obviously, the state does not have enough supply. Even though more people are moving out of California every year to neighboring states (those with lower taxes and regulations). California is also experiencing a migration influx from foreign countries. Although this immigration is leveling off, California is also participating in the international phenomenon of rising housing prices. There are additional factors increasing housing prices. What to do?

What not to do is single out a city that has been approving the building of new homes and sue them, even as it builds more houses than other cities with "acceptable" housing elements (see MOORLACH UPDATE — Mediating Huntington Beach — February 8, 2019 and

MOORLACH UPDATE — California vs. Huntington Beach — January 28, 2019). I give my two cents in the Fox & Hounds piece below.

Twenty-fifth Anniversary Look Back

Fifty years ago, I watched a 38-year-old Neil Armstrong become the first man to step on to the moon and gather moon rocks. Twenty-five years ago this month, as a 38-year-old, I wrote a letter to Assemblyman Curt Pringle with suggested legislation on the evidence I had gathered from my experience the prior few months, garnered from running for the countywide elected position of Treasurer-Tax Collector.

I wrote about city investment policies here: MOORLACH UPDATE — Housing and Banking — July 4, 2019 and requesting the reporting of investments at the current market value here: MOORLACH UPDATE — Marking to Market — July 12, 2019.

In this third segment, I shared my concerns for school districts and it was titled, "Newport-Mesa Unified School District." California’s school districts are required to have their cash balances invested by the County Treasurer. After all, the Orange County Department of Education doesn’t want to see some 27 school district treasurers responsible for investing in what should be cash equivalents in the fixed income markets. But, being stuck in a fund that had the possibility to implode? I know that greed can blind people, but this situation made no sense.

Making the situation even more tenuous is that several school districts were borrowing to invest. So, I met with the District’s Superintendent and Chief Business Officer. The meeting was half patronizing (thank you for informing us about your concerns) and half-contentious (you don’t need to be bothering us, as we know what we’re doing).

As time and irony would have it, that Chief Business Officer is now the Chief Executive Officer of the state’s Fiscal Crisis and Management Assistance Team (see This agency comes into California’s school districts in a fiscally distressed position, where reserve funds are below state guidelines. I worked with him after the Orange County Board of Supervisors appointed me to the position of Treasurer-Tax Collector until he accepted a position in Riverside County.

Serving on the Senate Budget & Fiscal Review Committee’s Subcommittee One, which oversees California’s school systems, it was a fun surprise to have Michael Fine testify each year on the status of school districts his agency was interfacing with (also see MOORLACH UPDATE — San Diego County School Districts — November 7, 2018).

It’s good to have someone at the top of FCMAT who truly understands what a fiscal crisis is. Something tells me he is now in the right position, at the right time, to assist a number of school districts in the coming months and years.

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 points):

Without making a long story longer, besides using ungodly amounts of leverage, the Pool is invested in highly speculative investments that are currently down in value some ten to twenty percent. In fact, the inverse floater derivatives are down forty percent in market value. Mr. Citron has some $3.5 billion in inverse floaters, for a $1.4 billion book loss (almost $1,200 per registered voter in Orange County). Frankly, my earlier estimate of a $2.2 billion overall loss in value is conservative.

I also sat down with the Superintendent and Finance Director of the Newport-Mesa Unified School District (NMUSD) subsequent to the election to discuss my findings. I also received some incredulous responses (needless to say, my cynicism rate about government has increased dramatically).

There are two issues directly related to NMUSD. The first relates to a state law that requires school districts to keep all of their reserve funds in their County’s Investment Pool (synonymous to keeping it with the County’s Treasurer). I’m sure this was initiated in order for the state to have some control over the finances of school districts.

The problem is that the NMUSD is not permitted an alternate place to put their funds. they are in a straight jacket. So if the Pool implodes, the NMUSD and all the others in the Pool will lose significant sums of money. As you may know, the NMUSD recently suffered a $4 million embezzlement and just recently achieved its minimum reserve funding requirement for the first time in ten years. Another financial set back, especially one that they could not avoid, will have this district reeling.

School districts are ultimately overseen by the state, accordingly California would have to prop up Orange County’s districts should substantial investment losses occur.

It is highly recommended that this law be modified to allow school districts to at least have alternative investment options. Banks, savings and loans, credit unions, Treasury notes, and/or money market funds would be safer than our Pool. Remember, safety of principal is the top priority.

The other concern is that of issuing taxable bonds just to invest in the Pool. NMUSD, in conjunction with three other school districts, has issued some $47 million in bonds just to arbitrage. That is, they are paying investors a rate of interest, hoping to earn a higher interest rate from the Pool.

This all works fine if you can stomach this type of gamble and if interest rates don’t go up. But, guess what? Interest rates have gone up and look as if they will continue to rise in the near future. This arbitraging, just borrowing to invest, has got to be reviewed before someone gets seriously hurt. Leverage can be a good thing if you are right, but it can be devastating if you are wrong. Simply put, if you want to make a killing you better be prepared to get killed.

The Tax Reform Act of 1986 closed the doors, pretty much, on doing this type of transaction with tax-exempt bonds. I believe the State of California should close the doors on these "black box deals" with taxable bonds. Otherwise, it better set aside reserve funds to bail out unfortunate municipality speculators who have mistimed the bond market.

Looking Forward on Affordable Housing

John Moorlach

By John MoorlachState Senator representing the 37th Senate District

With the state budget mostly concluded, now is a good time to look at future reforms to bring Californians more housing, affordable or otherwise.

It’s called a housing crisis, yet you can buy a 282-square-foot kit home on for $18,800, instructions included. If you need something bigger, there’s a 1,336 square foot kit home for $64,650.

So perhaps it should be called a property crisis. While building a house can be cheap, in California the property under it is the expensive component, requiring builders to meet all sorts of state and local regulations. State and local governments refuse to make it easier to erect any kind of housing.

Just Google “land entitlements” for a rude awakening on how complex property regulations are. This traditional approach needs a review.

The way not to do that is Assembly Bill 72 from 2017, by Assemblyman Miguel Santiago, D-Los Angeles. It ran roughshod over local governments’ control with their own housing regulations.

AB 72 is the weapon Gov. Gavin Newsom used in January in his unjust attack on Huntington Beach, which is in my 37th Senate District. Surf City allegedly failed to meet its affordable-housing goals mandated by state calculations for zoning to accommodate various income levels. Ironically, Huntington Beach is one of the major housing-approving cities in Orange County.

Gov. Newsom justified the lawsuit with a statement that “due to the rising house prices, it would prove to be a threat to the economy as well as deepen inequality.”

At the time, I called that “strong-arm tactics.”

Piling on, the state budget enacted last month included fines to cities of up to $600,000 a month for supposedly violating state housing goals. Cities don’t pay fines, citizens do. So, that’s effectively a tax increase.

Additionally, there is a problem with what is called the Not-In-My-Back-Yard (NIMBY) movement.

As Carson Bruno of the Pepperdine School of Public Policy described it, “Considering that the housing affordability problem is less a local issue and more a regional problem, until municipalities collectively begin opposing the movement, actual progress on solving the affordability crisis will continue to be delayed and blocked.”

Next, there are the state’s unreformed environmental laws.

A 2015 report by the Legislative Analyst found California housing prices were only 30 percent higher than the national average in 1970. Considering the mild climate and lower heating and cooling costs, that was a tolerable divergence. Soon after, housing prices began to soar to 80 percent above the national average in 1980. By 2015, prices were 250 percent higher!

The report found a major cause of the higher prices was the California Environmental Quality Act (CEQA), enacted in 1970. CEQA reports often caused cities and counties to deny “proposals to develop housing or approving fewer housing units than the developer proposed,” according to the LAO report. “CEQA’s complicated procedural requirements give development opponents significant opportunities to continue challenging housing projects after local governments have approved them.”

In May this year, the Senate postponed to next year consideration on Senate Bill 50, by Sen. Scott Wiener, D-San Francisco. A crucial part of the bill would “establish a streamlined ministerial approval process for neighborhood multifamily projects, thereby exempting these projects from the CEQA approval process.”

The reasoning is, by encouraging more housing closer to workplaces, people would drive fewer miles, reducing vehicles’ use of carbon fuels and the production of greenhouse gases. Thus, California would meet CEQA’s goal of improving the environment. I’m hopeful the Legislature will pass this component of SB 50 when it returns in 2020.

Another positive development I voted for is Assembly Bill 101, by the Committee on the Budget. Among other things, it would require the Department of Housing and Community Development to come up with a “methodology that promotes and streamlines housing development and substantially addresses California’s housing shortage.” The bill was approved without opposition in both houses and now is with the governor.

Finally, instead of punishing cities and counties with fines for allegedly not following state housing laws, how about rewarding them with more state aid to deal with the housing and homelessness crises? A carrot is a better incentive than a stick.

Rather than stigmatizing cities like Huntington Beach, an incentive approach would encourage all cities to work with the state to provide more housing.

John M.W. Moorlach, R-Costa Mesa, represents the 37th District in the California Senate.


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MOORLACH UPDATE — Booming Struggles — July 13, 2019

The Commentary section of tomorrow’s Sunday OC Register is expected to have the editorial below, which is the first piece provided. It seems to be channeling what I’ve been communicating (see MOORLACH UPDATE — Biggest Budget, Biggest Deficit — June 10, 2019). For more on the CalPERS meeting that is referred to, go to MOORLACH UPDATE — OC’s Newest Landmark Plaque — September 20, 2017.

The second piece below is by the Associated Press and is in the Reading Eagle. It provides the news of Gov. Newsom’s appointment of Marybel Batjer as the new president of the California Public Utilities Commission (CPUC). Ms. Batjer recently testified before a Senate Budget & Fiscal Review Committee meeting this year on the subject of the DMV. She made a good impression.

I have stated my concerns about the size of the CPUC and how it has become a massive and ineffective bureaucracy that is slow moving and reactive, versus proactive (see MOORLACH UPDATE — Wildfire Cost Reverberations — May 9, 2019).

Where was the CPUC in its encouragement to PG&E to harden its assets in a more expeditious manner? Where were the fire maps and why has it taken more than 8 years to complete them (see MOORLACH UPDATE — Snopes is Fired Up — November 14, 2018))?

Even AB 1054 hints at some modifications to the CPUC. This bill, signed yesterday by the Governor, created the California Wildfire Safety Advisory Board that will "currently" be housed within the CPUC (see MOORLACH UPDATE — AB 1054 and Investor-Owned Utilities — July 9, 2019)..

I wish Ms. Batjer all the best. I just know that, after receiving major negative State Auditor reports on departments, such as a scathing one on the CPUC from 2016 (see, nothing much happens to improve the situation. We need a "change agent" and I hope she can provide a model for other bureaucrats in Sacramento.


Despite booming revenues, California struggles with debts


The California Public Employees’ Retirement System reported an annual return on investment of 6.7 percent on Thursday – lower than its goal of 7 percent, but still a decent return rate. Meanwhile, California cities have seen a booming real-estate market, with property tax windfalls soaring by more than 6 percent in many areas. California’s budget is in surplus territory, with the governor earmarking billions of dollars to pay down state debts.

By any measure, this is good news, yet California cities and counties are struggling to make ends meet. They are facing something known as service “crowd out,” whereby their expenses are consuming so much of their budgets that there’s a dwindling amount left to pay for fundamental services. Many California public-school districts are likewise concerned about their financial straits.

Part of the problem is inherent in all governments, which tend to spend money until they run out of it. But there’s a lot more than that going on here. As columnist Dan Walters wrote in October, “The reason is that even with strong property tax gains, local governments’ pension costs are growing faster than revenues, thus putting the squeeze on their budgets.”

Nothing has changed since last year, except that the California Supreme Court has refused to revisit the “California Rule.” That’s the doctrine that public employee benefits cannot be pared back even going forward. Without a change in the rule, cities are largely helpless to rein in these costs. They can do little more than raise taxes and cut services.

Whenever he released a budget, former Gov. Jerry Brown featured big charts showing that recessions are often around the corner. He was reminding lawmakers not to pass permanent spending programs because they can go upside-down if the economy goes south. Gov. Gavin Newsom’s budget has record spending, but he, too, has boosted the state’s rainy day fund to buffer against a recession.

None of those warnings or savings, however, will cushion the blow for the state’s pension systems if the stock market starts to fall. CalPERS only has 70 percent of the funds it needs to fulfill all of its participating agencies’ pension promises. A 6.7-percent rate of return would be fine under most circumstances, but not when it’s already in a deep hole. And consider that the stock market has been soaring. State pension funds are in dangerous territory after years of unprecedented economic growth. What happens in a serious downturn?

Back in 2017, California city officials made the trek to Sacramento to speak to a CalPERS hearing to support a proposal by Sen. John Moorlach, R-Costa Mesa, to require that the pension fund provide more actuarial data about pension costs. The idea was shot down, but city officials talked about their constant budget cut backs as they try to pay the growing pension and medical tab for public employees. One official even raised the specter of municipal bankruptcy.

Despite their pleas, pension reform hasn’t captured serious attention in the Capitol. It’s ironic that state officials, who see themselves as the Trump resistance, are increasingly dependent on the Trump economy to keep bailing them out. But what goes up must come down eventually. It would be nice if state officials dealt with that possibility before the pension debt hits the fan.

California governor taps new top utilities regulator

California Gov. Gavin Newsom names new top utilities regulator to California Public Utilities Commission


SACRAMENTO, Calif. (AP) — California Gov. Gavin Newsom said Friday he is tapping Marybel Batjer, a veteran of state government, to serve as the state’s top utilities regulator.

Batjer will serve as president of the California Public Utilities Commission, overseeing power companies and other services ranging from water systems to telecommunications and limousines.

The commission has a particularly daunting job as the state grapples with big goals for reducing carbon emissions and seeks to curb the threat of wildfires caused by electric utility equipment. Power lines have sparked catastrophic fires in recent years and the state’s largest electric utility, Pacific Gas & Electric Corp., has filed for bankruptcy in the face of billions of dollars in claims for damage as well as questions about the company’s neglect of its aging equipment.

Newsom said he is confident Batjer will challenge utilities to embrace reforms. But plenty at the state Capitol will be watching to see if Batjer can also reform the commission itself, which critics say is too slow and inefficient.

Batjer is currently secretary of the California Government Operations Agency. Former Gov. Jerry Brown appointed her to that post in 2013. She is a veteran of state government, previously working as cabinet secretary to Gov. Arnold Schwarzenegger and as chief of staff to Nevada Gov. Kenny Guinn. Batjer worked in the administrations of Presidents Ronald Reagan and George H.W. Bush, and was later vice president for public policy at Caesars Entertainment Inc.

Batjer declined to comment for this story.

In Newsom’s administration, she is quickly gaining a reputation as a person to call when dealing with big bureaucracies.

Newsom, who took office in January, named Batjer earlier this year to head a strike team focusing on the state’s beleaguered Department of Motor Vehicles.

"We’re very encouraged that the governor has chosen someone with a strong background in managing and transforming large government institutions. We think the PUC needs that right now," said Mark Toney, executive director of The Utility Reform Network, an advocacy group based in San Francisco.

Legislators are already skeptical about the commission’s capacity to effectively oversee the services it regulates.

Sen. John Moorlach, a Republican from Costa Mesa and vice-chair of the Senate Energy, Utilities and Communications Commission, said he hopes Batjer will be a "change agent."

"I think there’s some signals this Legislature — and certainly this legislator — would like to see the (commission) trimmed down," he said.

Batjer will succeed Michael Picker, who announced in May that he would retire after almost five years in the post.


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MOORLACH UPDATE — Marking to Market — July 12, 2019

The Epoch Times used a quote of mine from earlier this year concerning the integrity of the state’s voter rolls (see MOORLACH UPDATE — Casting Shadows — January 4, 2019). I believe Orange County’s rolls are meticulously maintained by Registrar of Voters Neal Kelley. However, the piece below does raise concerns about some of the other 57 counties.

25th Anniversary Look Back

Twenty-five years ago, I wrote a letter to Assemblyman Curt Pringle with legislation suggestions. It was several pages long, so I’m providing it in segments. For the first segment, covering city investment policies, see MOORLACH UPDATE — Housing and Banking — July 4, 2019.

The second segment of my correspondence to Assemblyman Pringle focused on marking to market, as accounting misstatements occurred due to not accurately representing the actual market values in the audited financial statements of the County of Orange. The Wall Street Journal addressed this issue during the campaign(see MOORLACH UPDATE — Senate Bills 511, 584, 598, 496 and 640 — April 15, 2019). Here are three pertinent paragraphs from The Wall Street Journal piece:

Unlike mutual funds, pension funds, hedge funds and most other money managers, who have to recognize losses and gains in their portfolios as market prices move, Mr. Citron says he doesn’t have to mark his portfolio to market values.

“I can hold to maturity,” Mr. Citron says. “We don’t believe in taking paper losses and paper profits.” Hedge funds are unregulated private investment partnerships that wager huge sums in global currency, stock and bond markets in search of quick profits.

Mr. Moorlach says he isn’t impressed by Mr. Citron’s comment. “Mutual funds and everyone else marks to market, and if I’m county treasurer, I will mark investments to market,” Mr. Moorlach says. Not marking to market is just a way of concealing losses, he charges.

The Government Accounting Standards Board (GASB) would issue Statement 31 shortly after the County’s Chapter 9 bankruptcy filing to make sure the practice of reflecting accurate values of investments in comprehensive annual financial statements was observed (see MOORLACH UPDATE — GASB — July 21, 2011, MOORLACH UPDATE — We’re Out! Sort Of — July 2, 2017, and MOORLACH UPDATE — Carpool Christmas — December 6, 2014).

For more on GASB 31, see I take ownership of this GASB pronouncement, as I initiated the need for its issuance.

The second portion of the letter was extremely prescient (see sentences in bold) and is provided below:

In Orange County, the Treasurer has converted his Pool from what should be a money market mutual fund to an intermediate-term, highly leveraged, bond mutual fund. Any knowledgeable investor knows the amount of lost value that has recently occurred to these types of investments.

Awkwardly, Orange County’s Pool still reports like a money market fund. A money market has a net asset value of $1.00 per share. This makes a money market fund similar to a bank account. However, a mutual fund’s net asset value is based on the day’s closing values of the investments owned at the end of that day by the fund. We call this exercise “marking to market.”

The Orange County Pool has approximately $22 billion in cost basis purchased investments per its MoneyMax portfolio listing. The bond market has been crashing since mid-October of 1993. It is safe to say that his portfolio is down at least five percent and is probably down ten percent. This translates into a $2.2 billion book loss.

The pool has approximately $7.3 billion in participant contributions, i.e. funds being invested by the County for some 180 municipalities. The difference between the $22 billion and the $7.3 billion represents some $14.7 billion in borrowing (or leverage). Accordingly, the participants no longer have $7.3 billion in market value but have $5.1 billion. This represents a thirty percent loss on their investments (so go the joys of leveraging up three times.)

What makes the scenario interesting is that the Treasurer does not mark to market. If Tustin wants their $4 million investment, they get $4 million back. If the fund marked to market, Tustin should only have received about $2.8 million. By not marking to market, the Treasurer is obfuscating the true losses and is setting up the County for a major financial fiasco. Let me elaborate.

Should the City of Costa Mesa pull out its $14 million in funds, it would lose no principal. However, it received $4.2 million too much. And that distribution has to be borne by the remaining participants in the Pool. This is theoretically possible, but statistically improbable.

The treasurer has to hope for two things:

1. That interest rates return to their recent historical lows. Unfortunately, this is unlikely based on recent inflation concerns, declining values of the dollar, and increasing employment trends. (Rest assured that I personally hope they do go down soon for our County’s sake.)

2. That all the participants stay in the Pool and make no withdrawals.

During my campaign our Federal Reserve Board Chairman, Alan Greenspan, increased interest rates four times. I’m sure this caused Mr. Citron more consternation than my challenging him did. But to keep participants in the Pool he had to publicly vilify the City of Tustin for its withdrawal. Needless to say, we caused a lot of grief for Mr. Citron because we were exposing his financial debacle to the public.

Any experienced investor would see the problem and get their funds out intact. Doing so would cause the pool to implode as investments would have to be sold below cost, thereby causing true losses. Since the Pool doesn’t mark to market, who would eventually bear the losses? The other participants? They never agreed to that arrangement and law suits would start flying. The County of Orange? This would seem to be the case, but how could they fund losses of such a magnitude? The State of California? This could be the financial guarantor of last resort, but where would it get the money?

As you can see, the taxpayers become our speculative Treasurer’s bad investment decision guarantors. The County of Orange would be reeling for decades as it tried to replenish the lost funds.

That is why I stated in my campaign that I would mark to market immediately after being elected, should that occur. It would force the participants to take an immediate loss and give them three choices:

1. Keep their funds in the Pool in the anticipation that interest rates would go back down and, thereby, restore the market value of the portfolio up to their cost basis. Or
2. Remove their funds now at a significant loss only to their municipality and no others. Or
3. Do something in between by holding until market conditions improved to recoup some of their book losses.

The State of California needs to approve legislation that requires County Pools structured like Citrons to be “marked to market.” And in Citron’s case it needs to be enacted retroactively.

Now that we are on the topic of GASB and their issuing pronouncements after the damage has already been done, let me introduce other statements they’ve issued that are important (but late). Not that I can claim ownership on them, but I have been agitating those involved with GASB over the last two decades.

GASB Statements 43 and 45 started the addressing of Other Post Employment Benefits (OPEBs) (see Unfortunately, it only required the inclusion of retiree medical liabilities for the shortage in the annual required contribution amount, if any.

GASB 68 finally required the inclusion of defined benefit pension plan liabilities on the balance sheets of municipalities (see This mandate occurred some three decades after the for-profit industry was required to do so by the Financial Accounting Standards Board (FASB). This became effective a few years ago.

GASB 74 updated GASB 43 and 45 by requiring the entire OPEB liability to be reflected in the balance sheet (see It became effective with the June 30, 2018, audited financial statements. The implementation may be difficult, as I am still waiting for the Comprehensive Annual Financial Reports for many cities, school districts, counties, and states.

I have received all of the CAFRs for California’s Community College Districts (see MOORLACH UPDATE — Recognizing Movement — June 7, 2019). My rankings for 2018 will show you how significant and material this pronouncement has been on a number of the Districts.

GASB 87, addressing lease accounting, will be the next major pronouncement to impact the for-profit and municipal industries. It requires capitalizing leases. Let me give you an example, instead of just showing an auto lease payment in the expense section of the income statement, in the future GASB will require reflecting the auto in fixed assets section and the supposed loan (lease) in the liability section.

I’m not sure I agree with GASB 87. And, industry is having a difficult time adjusting to it, as this will also be a significant modification to their balance sheets. Two bills are moving through the Legislature to address this major change. I have become a coauthor on both to assist the authors on the technicalities as they move through the process. They are AB 412 by Assemblywoman Sharon Quirk-Silva and AB 295 by Assemblyman Tom Daly.


Nearly 1 Million Californians Registered to Vote Are Ineligible, Says Non-Partisan Group


A non-partisan group has reported that there are still several counties in California where the number of registered voters is greater than the number of eligible citizens, with the total nearing one million people.

The Election Integrity Project California (EIPCa) stated in a release on July 8 (pdf) that if voter problems are not promptly addressed by state officials, fraudulent election activities may continue to haunt the state.

Using the state’s own data on active and inactive status registrants, the organization found that eight counties have not cleaned up their inactive registrant lists, despite a 2018 legal settlement that requires California counties to properly maintain their voter rolls and remove inactive voters according to federal law.

According to EIPCa, there are currently 991,411 people registered who are ineligible to vote. This is a staggering increase of 928,035 persons over the group’s 2017 report.

As the number of names with inactive status continues to grow, the organization noted that these excess registrants open up the doors to fraud.

Voter registration rates that exceed the eligible population range from 103% in Ventura, San Benito, and Plumas counties to 115% in San Diego. Other counties include San Mateo at 104%, Solano and Santa Cruz at 107%, and Los Angeles at 109%.

Just months ago, the state’s Department of Motor Vehicles (DMV) acknowledged making 105,000 registration errors, with at least one noncitizen claiming the DMV improperly added him to the voter rolls.

In an interview with The Epoch Times, EIPCa Chief Analyst Ellen Swensen confirmed that the DMV’s practices still need improvement, although the EIPCa doesn’t have a way of finding out who is or isn’t a citizen by just looking at their voter registrations.

In addition to the errors made by the DMV, she said, people who are ineligible to vote might also be getting registration forms from people who are paid to register voters and who might be unaware of the law.

“This can harm [immigrants’] future chances of gaining citizenship, so it’s important that non-citizens become educated about this,” she said. Furthermore, there are “thousands of duplicated [and ineligible] registrations” that can be used during elections “with or without the person’s knowledge.”

Recently, nine people were accused of offering cash or cigarettes in exchange for forged signatures on voter registration forms and petitions in Los Angeles. Prosecutors claim the group was active during the 2016 and 2018 election cycles, targeting the homeless to help them register fictitious persons.

EIPCa says this type of abuse may have been enabled by the state’s voting laws.

“Because California does not require an ID for a person to vote, and because some counties include the names of inactive registrants on their publicly-displayed Election Day rosters, anyone can claim to be the inactive registrant and receive a ballot,” Swensen said.

“All that is required is an oath (verbal or signed) that they are who they say they are.”

Swensen said officials need to do more to fix this problem.

“EIPCa would like to see counties become more proactive with list maintenance by mailing a card to every registrant on the list, not just those with inactive status,” she explained.

“This would allow all registrants to update their information and would, for those who have moved, died, etc., begin the lawful [process of inactivation and cancellation]. This would go a long way to reduce the almost 1 million ineligibles currently on CA’s list.”

In early 2019, the Sacramento Bee reported that Secretary of State Alex Padilla’s office was investigating whether noncitizens had voted in the June 2018 primary. At the time, Padilla admitted that voters were losing their trust in the system due to registration errors, echoing others such as State Sen. John Moorlach (R-Costa Mesa), who said that despite his “high level of confidence in California’s election systems,” he knew that the state should “do more to assure the voters that the system doesn’t have holes in it and that the boat isn’t leaking.”

Meanwhile, in November 2018, San Francisco became the largest city in the United State to give noncitizens the chance to vote in a local election. While the city’s move did not impact any election in the state or federal levels, some believe that the trend could spread to the rest of the state, and errors could continue to occur.

“Noncitizen voting is a very contentious issue,” said Robin Hvidston, executive director of We the People Rising, a Claremont organization that lobbies for stricter immigration enforcement, at the time, according to the Los Angeles Times. “The move to extend voting rights to those illegally residing in San Francisco has the potential to backfire among citizens with a moderate stance on illegal immigration.”


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MOORLACH UPDATE — AB 1054 and Investor-Owned Utilities — July 9, 2019

I learned about "gut-and-amended" Assembly Bill 1054 a week ago Sunday. I’ve been working feverishly on researching the Governor’s plan to address wildfires and the utilities ever since. By last Friday’s Session, we still did not have the official version. It would be released that evening, after we had returned to our Districts.

The LA Times (electronic) interviewed me on the Senate Floor Friday morning while the Democrats were holding a private caucus meeting to strategize about AB 1054. My observations are reflected in the first piece below.

In the second piece below the Associated Press provides the results of Monday’s efforts. AB 1054 was first heard in the Senate’s Energy, Utilities and Communications Committee starting at noon. As the Committee’s Vice Chair, I had the privilege of running the beginning of the meeting, as the Chair’s flight was delayed. After a 2-1/2 hour discussion, it passed on a partisan vote.

Session started at 3 p.m. AB 1054 was waived with a majority party vote to allow it to be heard immediately in Senate Appropriations. There, it passed on a 5-to-1 vote, with one abstention, and went immediately to the Senate Floor, where it passed 31 to 7. I voted in support (also see MOORLACH UPDATE — Wildfire Fund and the Poor — June 22, 2019 and MOORLACH UPDATE — Undergrounding In Paradise — May 28, 2019).

AB 1054 is a massive bill of major import. This is not the best way to address statewide matters of an urgent matter, but I can’t think of another way considering the system we are operating under. This bill is not perfect, but some form of effort between the state and its regulated investor-owned utilities needed to be pursued.

All the same, I did provide a way to acquire more time to allow for more debate and improvement to the bill. I mentioned that the State Treasurer’s Investment Code could be modified to enable the Treasurer to purchase Commercial Paper from a downgraded investor-owned utility. The third piece below, from the San Francisco Chronicle, provides the conclusion of my remarks.

The fourth piece below is from The Sacramento Bee and provides the details of the Senate’s vote on AB 392, which I also supported.

And, if you want more reading, the fifth piece is from CALmatters and sets the stage for the upcoming redistricting responsibilities that are accomplished every ten years. My frustrations from the 2010 redistricting process were invoked (see MOORLACH UPDATE — Gerrymandering — August 24, 2011).

In 2016 and 2018, Sen. Ben Allen was successful in getting SB 1108 and SB 1028 passed and signed. I voted for both of them. These bills provided optional frameworks to provide redistricting committees. All well and good. But, his effort this year mandates local committees and virtually annuls his first two bills before they ever had a chance to be implemented. As I said on the Senate Floor, "Wouldn’t it be nice to see if these two bills worked first?"

Wanting to ease utility wildfire costs, Newsom faces biggest test yet with lawmakers


There’s been no shortage of criticism for Gov. Gavin Newsom’s plan to help California’s largest utilities stave off bankruptcy from costs associated with wildfires: No focus on prevention efforts. More difficulty proving utility negligence. Too much of the financial burden falling on millions of utility customers.

The governor, six months into his first year in office, faces a crucial test this week as he attempts to convince the California Legislature to ratify a multibillion-dollar utility wildfire fund before lawmakers leave Sacramento for a one-month recess.

“This is his first time up to bat on a very big issue,” said Joseph S. Tuman, a professor of political and legal communications at San Francisco State University. “It’s important for him to have success with this.”

The legislation, which will need a supermajority in both houses to pass, marks Newsom’s most consequential effort yet to leverage his political power in enacting major legislation. His reputation is on the line, and it’s unclear if his solution to utility liabilities will earn enough support, even in a state Capitol dominated by Democrats.

Lawmakers from both parties share concerns about any proposal that could be cast as a gift to power companies that have been responsible for wildfires in their communities. Newsom’s plan would take $10.5 billion from California ratepayers to help utilities pay wildfire costs, which critics say is an unfair burden for electricity customers with no guarantees that the corporations will operate their systems safely.

Late last month, nine legislators sent him a letter criticizing the bill for failing to address wildfire prevention.

“At a time when we have a $20-billion surplus, could we not make some of that money available to keep Californians safer?” asked Assemblyman Jim Wood (D-Healdsburg), who signed the letter to the governor.

Credit ratings agencies have inserted a sense of urgency into the process, threatening to downgrade the investment grades of Southern California Edison and San Diego Gas & Electric if the state fails by Friday to pass legislation that would significantly reduce utility companies’ financial liability for wildfires.

With Pacific Gas & Electric in the midst of federal bankruptcy proceedings, Newsom hired top law firms and investment analysts earlier this year — at a cost of $6 million — to help him develop a solution. The governor argues that his answer will cost ratepayers less than inaction. The bill requires utilities to pay claims for 2017 and 2018 wildfires without raising rates for their customers in order to access the fund.

Doing nothing would be “a catastrophic consequence to ratepayers, and I think most objective people that have looked at this would say that’s the option that will most impact customers,” Newsom said last week. “None of this is easy. I took the oath of office with this predicament, and sort of inherited a challenge here. I’m not trying to defer responsibility. Quite the contrary, I’ve owned this.”

Newsom’s proposal offers two different options to shore up the industry’s finances and avert another utility bankruptcy.

One model offers investor-owned utilities a $10.5-billion line of credit through an extension of an existing fee on electricity bills. A power company could use the money to pay costs that exceed its insurance coverage for wildfire damages, and it would be responsible to repay the loans.

A second option would establish a first-of-its-kind annual utility safety certification process before the onset of wildfire season. In order to qualify, companies would have to tie executive compensation to safety performance, create a safety committee on its board of directors and be implementing their wildfire mitigation plans.

A company that earned a safety certification before wildfire season would be allowed to dip into a wildfire fund, supported from the $10.5 billion from ratepayers and at least another $10.5 billion from the utilities.

The wildfire fund would act as a second insurance policy for the utilities. The companies would only have to pay it back, up to a cap, if they behaved unreasonably to cause a fire. The safety certification would also shift the burden of proof away from a utility, requiring outside groups to intervene in regulatory proceedings and raise serious doubt that the electrical corporation operated its system reasonably before a wildfire. Critics have said the shift would make it harder to prove that a utility is at fault.

Consumer advocates, including The Utility Reform Network, or TURN, are concerned that powerful utilities will use their political muscle to pass legislation in their favor. Edison and SDG&E formed a lobbying coalition with electrical workers and other business and community groups, called Action for Wildfire Resiliency, and have turned to Twitter to pressure individual lawmakers to support the governor’s bill.

“Consumers are always concerned when we see Wall Street lobbying hard at our Capitol because we know that they are lobbying for their own interests and not ours,” TURN spokeswoman Mindy Spatt said. “Their interests are in the utility being profitable. Our interest is in the utility being safe and affordable.”

Michael Aguirre, the former city attorney of San Diego who now represents customers in cases against the utilities, called the proposal “a funding mechanism to do more wildfires because they’ve given up on stopping them.”

If the bill is signed into law, Aguirre said he would sue the state in federal court for violating the Takings Clause in the U.S. Constitution.

“The Takings Clause says you can’t take someone’s property without due process of law and making me prove that you don’t have a right to my money is not due process,” Aguirre said about the money ratepayers will be forced to contribute to the wildfire fund.

Wood said he supports Newsom’s attempts to keep the power companies afloat. He also believes the state needs to spend more money to harden homes in fire-prone areas and educate residents about ways to manage their property to reduce the likelihood of burns — funding which was omitted from the budget signed by Newsom last month, a spending plan that dedicated nearly $1 billion to emergency response, wildfire recovery and prevention projects such as forest thinning.

“That’s historic investment into emergency management and wildfire prevention,” Newsom said last week. “But is there a lot more to do? Absolutely, and we’re committed to doing that over the course of the next couple of years.”

The California Forestry Assn., a collection of forest owners, mills and others with ties to the industry, agrees with Wood and the other lawmakers. Rich Gordon, president of the association, said there’s not enough money to treat all of California’s forest lands, which cover one-third of the state. But Newsom should dedicate more funding to create fuel breaks around vulnerable communities and defensible space near homes, he said.

“The bill, as currently crafted, protects utilities and provides them with an opportunity to stay somewhat solvent, but it doesn’t provide any protection for the folks who are also going to be contributing through the continuation of a fee toward that fund,” Gordon said.

It’s unclear if the governor has enough votes to pass the bill. His top advisors met with Republicans in the Legislature, suggesting they don’t expect to earn the support needed solely from his fellow Democrats.

Democrats in the Senate successfully negotiated for legislative amendments last week that created stronger rules for the safety certification process that ties executive pay to safety performance. The amendments would also allow for on-the-ground safety audits.

Wood, who represents part of Sonoma County devastated by fire in 2017, wouldn’t say if he plans to support or oppose the legislation.

“I don’t want to hold something hostage, but I do want people to know that I’m serious,” Wood said. “I’m not going away. These are valid concerns.”

Assembly Speaker Anthony Rendon (D-Lakewood) said he’s held discussions and meetings about the legislation for several days.

“We take it seriously,” Rendon said. “We certainly understand that something needs to be done quickly. At the same time, we’re not going to rush it at the sake of good policy.”

Others say they are concerned about the lack of transparency and time for public input. The bill was amended late Friday while many Californians were taking a long holiday weekend.

“This is not the way to do business,” Sen. John Moorlach (R-Costa Mesa) said. “There’s an urgency, but it isn’t something that is such a high crisis right now that it needs to be done within a week before we go on summer break. It needs to be looked at with a lot of good, smart people around the state before it’s voted on.”

Newsom said last week that the ratings agencies may give the Legislature a few extra days to pass the bill if lawmakers make substantial progress this week. If the Legislature shows it is “moving with sincerity toward coming up with some resolution,” he said, it could also make it less likely that utilities would file for bankruptcy in the event of a downgrade.

California Senate OKs Wildfire Proposal With Bipartisan Vote

The California Senate has approved a proposal to stabilize the state’s electric utilities and improve safety in the face of devastating wildfires.


California senators approved a proposal Monday aimed at stabilizing the state’s electric utilities and putting a renewed focus on safety in the face of devastating wildfires caused by utility equipment, with supporters calling it a plan that holds utilities accountable and protects ratepayers.

"Make no mistake — this is not a utility bailout, it’s a ratepayer bailout," said Sen. Bill Dodd, a Napa Democrat and one of the bill’s co-authors.

Lawmakers and Gov. Gavin Newsom are rushing to pass a package of wildfire bills by Friday before lawmakers take a month long break and as ratings agencies consider whether to further downgrade the credit ratings of the state’s investor-owned utilities. California’s wildfire season has already begun.

The proposal now heads to the state Assembly.

The bill creates a wildfire fund of tens of billions of dollars that utilities can tap to help pay for wildfire damages if they follow certain safety steps, including tying executive pay to safety. Utilities and ratepayers would pay into the fund. Utilities would also have to invest billions in wildfire mitigation efforts.

A coalition of groups has rallied around the measure, from labor unions representing utility workers to wildfire survivors, who see the bill as giving them more leverage as Pacific Gas & Electric Corp. goes through the bankruptcy process. A watchdog group, The Utility Reform Network, also supported the bill Monday, praising provisions on wildfire mitigation and tying CEO pay to safety.

Although it won bipartisan support, lawmakers said it wasn’t perfect. Some questioned whether it would raise utility bills, while others said it didn’t do enough to protect homes or manage vegetation that fuels wildfires. Sen. Scott Wiener, the only Democrat to vote against the bill on the Senate floor, said it was a missed opportunity to move the state away from reliance on investor-owned utilities.

California’s three major utilities — PG&E, Southern California Edison and San Diego Gas & Electric — are owned by investors.

"We need to take what is a broken model right now in terms of investor-owned utilities in California and look toward the future," Wiener said.

The bill is speeding quickly through the Legislature; it was introduced less than two weeks ago and amended significantly last Friday. It had its first public hearing roughly six hours before it went to a vote on the full Senate floor.

"It’s a little rushed," said Republican Sen. John Moorlach, though he voted to pass it.

It is a sprawling piece of legislation and has turned into a battleground for special interests. It provides, for example, broad worker protections if a utility changes ownership or sells off some of its assets. Wiener said that would make it harder for municipal electric utilities to buy assets from major power companies, potentially stifling efforts to expand publicly owned electric systems.

Last week Newsom acknowledged the complexity of the issue and said in response to critics that doing nothing would be catastrophic for utility ratepayers.

"None of this is easy," Newsom said then. "I think it’s the best of all the options and, in the absence of others being presented, I think it’s the one most likely to get the votes."

The urgency to act comes after California experienced two of its most devastating wildfire seasons in 2017 and 2018, with some of the worst blazes blamed on utility equipment. PG&E Corp. filed for bankruptcy in January as it stared down potentially tens of billions of dollars in liability costs.

Under the plan, utilities would have to get a new safety certification and show their conduct was reasonable in order to tap it. If a utility has the safety certification, it would be presumed to have acted responsibly, shifting the burden to victims or others to show they did not. If victims’ groups raise serious doubt about the utility’s conduct, the burden would then shift back onto the utility.

It also creates a new Wildfire Safety Advisory Board with appointees from the governor and legislative leaders to advise the California Public Utilities Commission. The Associated Press reported that the original version of the legislation would have automatically exempted all communications between the board and the Public Utilities Commission from public disclosure and exempted it from some portions of the state’s open meetings law.

The bill has been changed to remove the open meetings law exemptions, and it no longer includes a blanket disclosure exemption. Instead, the Public Utilities Commission or the board would have to assert privilege in individual cases.

California Senate easily passes bill to protect utilities from wildfire costs

Photo of J.D. Morris
J.D. Morris
A major bill intended to rein in the increasingly dire wildfire risks faced by California’s investor-owned utilities easily cleared its first legislative hurdles on Monday as the state’s elected leaders raced to get new laws in place before power lines cause any more devastating blazes.
The Senate voted 31-7 in favor of the far-reaching legislation, AB1054, which would create a fund of at least $21 billion to cover future wildfire claims and usher in a series of changes to the way the state oversees the safety of its electric grid. Two Senate committees voted overwhelmingly in favor of advancing the bill earlier in the day.

The fast-tracked bill now heads to the Assembly, which is under pressure from Gov. Gavin Newsom’s administration and Wall Street to act before the end of the work week. If passed on a two-thirds vote, the legislation would become California’s most comprehensive response so far to the wildfire problems of Pacific Gas and Electric Co. and its two Southern California counterparts.

Aside from creating the wildfire fund, the bill also would mandate that the three major utilities make a total of $5 billion in safety investments — from which their shareholders cannot profit — and get the safety of their operations certified annually by the state. It also would change the standard regulators follow when deciding whether utilities can recover wildfire costs from their customers. A related bill would create an office within the Natural Resources Agency that focuses on energy infrastructure safety, advised by a panel of experts.

“It is clear we must rapidly adapt and respond to the effects of climate change and other causes driving these monster infernos,” said state Sen. Bill Dodd, D-Napa, on the Senate floor. “Too often, electric utilities are blamed for these devastations … No plan is perfect, but neither is (the) wildfire situation we face as Californians.”

The bill is intended to help avoid a repeat of the situation faced by PG&E, which filed for bankruptcy in January because of its massive wildfire liabilities. PG&E would not be able to access the wildfire fund unless the company resolves its current wildfire claims and exits bankruptcy protection by June 30 of next year.

One of the no votes came from Sen. Scott Wiener, D-San Francisco, partly because of recent amendments that he said would make it harder for local jurisdictions to create or expand municipal utilities.

San Francisco is considering buying the local power lines controlled by PG&E. Mayor London Breed joined the mayors of Oakland and San Jose in a letter opposing the amendments, which would give state regulators greater authority over any attempt by a local government to buy part of a utility.

Wiener said he was reluctant to oppose the bill because “there’s a lot of good in this legislation” and it “will have benefits for ratepayers.” Ultimately, however, he was compelled to vote against it in committee and on the Senate floor in large part because it “dramatically increases” the power of regulators over municipal utility expansion efforts, he said.

Newsom, whose office spearheaded the plan underlying the bill, had asked lawmakers to act by Friday — when the legislature is scheduled to break for summer recess. Southern California’s major investor-owned utilities could see their credit ratings downgraded to junk if legislation is not in place by then.

Some of the state’s most frequent utility critics of late have not opposed the bill or even actively backed the measure.

Supporters include Up From The Ashes, a wildfire victim advocacy group, and the California State Association of Counties, among many other organizations.

Mark Toney, executive director of The Utility Reform Network consumer group, said at the hearing that his organization reserves the right to demand changes to the bill later, but called it “the best proposal we have seen on the table.”

Only a handful of people spoke in opposition to the bill, including 2017 Santa Rosa wildfire victim Will Abrams, who, during a committee hearing, called it a “Christmas tree for utilities” with “too many ornaments on it” and warned of loopholes in the legislation that “utilities and their attorneys will drive trucks through.”

PG&E is neutral on the bill, while Southern California Edison supports it and San Diego Gas & Electric has no position, according to representatives of the companies.

Before the bill’s first hearing, about two dozen survivors of the 2017 and 2018 fires gathered on the steps of the Capitol to rally in support of the bill. They said that while AB 1504 doesn’t directly help victims of past fires, it’s a crucial starting point and will give them leverage to negotiate a settlement with PG&E.

The bill came after months of policy work from state government officials and a special wildfire commission, but the specific legislative language was released less than two weeks ago.

Sen. John Moorlach, R-Costa Mesa (Orange County), lamented his colleagues’ rush to pass the legislation, saying he was “sorry the perceived immediacy is dictating the pace” of AB 1054. Still, Moorlach indicated on the Senate floor, perhaps jokingly, that the bill’s swift progress had one upside— showing the state government can move quickly.

He ultimately voted yes.

Chronicle staff writers Dominic Fracassa and Dustin Gardiner contributed to this report.

J.D. Morris is a San Francisco Chronicle staff writer. Email: jd.morris Twitter: @thejdmorris

All that’s left to overhaul

California’s police use-of-force

law is Gavin Newsom’s signature

BY DAVID CARACCIO | <a href="mailto:hwiley

A measure that would make California’s law governing police use of force one of the strictest in the country cleared the Legislature late Monday and is on its way to Gov. Gavin Newsom’s desk.

Assembly Bill 392 passed the Senate floor on Monday afternoon in the final leg of a yearlong process to elevate California’s deadly force law from when officers think it’s “reasonable” to only when “necessary.”

The Democratic governor is expected to sign the measure. He called it “an important bill” that will “help restore community trust in our criminal justice system” in late May.

AB 392 allows officers to employ lethal force “based on the totality of the circumstances,” but it defines “necessary” as when officers or the public face an imminent threat of death or serious bodily harm.

The bill would require evaluating an officer’s conduct before and after deadly force is used and whether deescalation techniques were attempted as an alternative, but would allow managers to consider “all facts known to the peace officer at the time.”

Monday’s 29-1 vote contrasted with the rocky reception Assemblywoman Shirley Weber encountered when she introduced the bill in February.

The San Diego Democrat and police lobbyists struggled to find a compromise that could satisfy both civil rights groups and law enforcement agencies.

But after accepting amendments that rolled back a provision to hold officers criminally liable if they did not meet the strict standard, the police lobbyists rescinded their opposition.

Family members of Stephon Clark, shot by police in March 2018 after officers responding to a car burglary call mistook his cell phone for a gun, marched to the Capitol a year later in support of the effort.

“It’s taken a long year of commitment by a lot of people,” Senate President Pro Tem Toni Atkins said. “It was not a simple thing to weave together, to keep the parties coming together to work toward something we could agree upon.”

Costa Mesa Republican state Sen. John Moorlach said the bill would reduce “tragic and possibly preventable” deaths.

Many of his fellow Republicans joined him in supporting the bill.

AB 392 is backed by the American Civil Liberties Union of California, along with hundreds of other organizations and individuals.

Dozens of law enforcement representatives from across the state, however, still oppose the measure.

Weber and the bill’s supporters said the legislation gives California an opportunity to serve as a use-of-force model for other states to follow suit.

“Finally, folks are serious about it,” Weber said. “We were fighting some of the most difficult issues in the state. Who should do it better than California?”

State may push cities and counties to draw “fairer” districts


Rhonda Shader is tired of looking at maps of Placentia.

First as a councilmember and now as the mayor, Shader has seen the 7-square miles of her north Orange County town sliced and diced at least a dozen ways to satisfy the demands of good governance groups who accuse the city’s leaders of gerrymandering and discrimination.

“We’ve really made an effort to stay out of court because quite honestly our city can’t afford it,” said Shader.

Easier said than done.

In 2016, the city agreed to ditch its at-large election system and adopt a new map with five distinct districts. That came after the Mexican American Legal Defense and Educational Fund threatened to sue the city, arguing that the old system, with each council member representing the entire city, made it all but impossible for Placentia’s minority Latino community to elect a representative of their choosing.

When the city adopted a new map in 2018—one of eleven proposals—the Legal Defense Fund threatened to sue again, arguing that the designated-Latino district was short on Latinos voters.

Now the city is considering its third map.

Placentia is one of hundreds of California cities and counties that have been forced, either by court order or the threat of legal action, to redraw their electoral maps over the last decade. In Kern County, Palmdale, Torrance, Menlo Park and Martinez, to name a few, litigants have accused local leaders of abusing the districting process to disempower minority groups, protect incumbents, or tilt the scales in favor of one party.

“When the lines aren’t drawn fairly, it can block a community out of having representation for a whole decade. On top of that, when people feel the election process is rigged, it undermines trust in democracy,” said Nicolas Heidorn, policy and legal director with California’s Common Cause, a government transparency group.

They may soon have extra help from the state of California: Legislators are considering two bills that would place new districting rules on local governments.

Already California’s congressional and state legislative districts are drawn by a bipartisan commission, which supporters say represents a national gold standard in fair, transparent political map design. Its intent is to prevent gerrymandering—a technique of map manipulation named for Elbridge Gerry, who as Massachusetts governor in 1812 permitted his party to draw districts to their advantage, including one shaped like a salamander. An editorial cartoonist at the time lampooned it as a “Gerrymander.”

Now, despite a recent U.S. Supreme Court ruling that gives lawmakers across the country the greenlight to gerrymander as much as they like, these two bills could push the state even further in the other direction.

  • AB 849 would set up rules restricting how cities and counties draw their council and supervisory maps. Among other things, the bill by Democratic Assemblyman Rob Bonta from Oakland would require each district to “respect the geographic integrity of local neighborhoods and communities of interest.”
  • SB 139, by Santa Monica Senator Ben Allen, would require most counties over 250,000 people to create independent redistricting commissions. These could either be modeled on California’s Citizens Redistricting Commission, with virtually equal seating for Democrats, Republicans and political independents, or they could be made to reflect the partisan makeup of the county itself—as long as no one political party controls more than a majority of the seats. Of the 12 slots, a single party would only be allowed to have 6, with the rest made up of political independents. Exceptions are made for San Francisco, San Diego, Los Angeles and Santa Barbara counties, which already have their own commissions.

In the wake of a recent ruling from the U.S. Supreme Court, advocates say it’s more important than ever that the state take the lead on this issue.

In an opinion issued in late June, Chief Justice John Roberts ruled that the county’s highest court did not have the authority to second-guess district lines just because they artificially inflate the electoral prospects of one party over another. But, he reminded opponents of partisan gerrymandering, “the avenue for reform established by the Framers, and used by Congress in the past, remains open.”

In other words, states that are tired of gerrymandering are invited to do something about it at the state level.

“These bills are basically taking up the challenge that was laid down in that opinion,” said Heidorn with Common Cause, the co-sponsor of both bills.

So far, no high-profile Democratic lawmakers have argued that the state should abandon its high-minded position on nonpartisan districting in response to the Court’s ruling. That might be because California’s independent districting system was approved by voters in two separate ballot measures and that, with Democrats holding supermajorities in both chambers of the state Legislature along with 46 of the state’s 53 congressional seats, there isn’t that much room for electoral improvement.

If both bills were to become law, they would go into effect next year, just in time for the next round of mapmaking after the 2020 Census. For the hundreds of cities that have, like Placentia, been forced to adopt by-district city councils over the last decade, this will be their first experience with redistricting.

“As a general matter, it is wise to ensure that the first redistricting process that these local governments experience go as smoothly and transparently as possible,“ said Thomas Saenz, president of the Mexican American Legal Defense and Educational Fund. Saenz said the Fund withdrew its support of SB 139 last week, after the bill was amended to allow counties to establish committees with equal partisan representation.

“We don’t think that complies with the US Constitution,” he said. “If particular counties did that we would look at whether there is a legal avenue to challenge that choice.”

The Fund is officially neutral on both bills.

So far, most of the opposition has come from county and city government groups, who are worried they will be saddled with the costs of implementing these reforms.

But others have raised philosophical objections—arguing that while extreme gerrymandering results from partisan warfare at the state and national level, such partisanship is largely absent in cities and counties where offices are technically nonpartisan.

“This is what folks mostly up in Sacramento are clueless about,” said Doug Johnson, president of the National Demographics Corporation, which consults with cities on political mapmaking and who has drawn many electoral maps that could be invalidated by these laws. “They’re so used to Sacramento politics and the Sacramento gerrymandering and the nonstop partisanship of Sacramento, they miss that local government in California is a whole different world.”

Courts have not always seen things that way.

Last year, a federal district judge found that the Kern County Supervisors’ map split the Latino-dominated portion of the county across multiple seats, depriving Latinos “of an equal opportunity to elect representatives of their choice.” The county was ordered back to the drawing board.

Under Allen’s bill, Kern’s next map would likely be drawn by an independent commission.

Placentia faced a similar charge when it approved its 2018 district map, which cut the city into columns running north to south, splitting the Latino neighborhood between the first and second district. But Shader said that configuration was designed to promote collaboration at City Hall.

“Everybody has a piece of the north, everybody has a piece of the south,” she said. Instead of a system in which each council member is loyal to one neighborhood or community, that original map “helps everybody work together,” she said.

“I feel like they’re trying to control our process,” she said of Bonta’s bill. “We know our communities.”

Kevin Shenkman has heard this argument before. By his count, the Malibu-based lawyer has forced over 70 California cities to redraw their maps, beginning with his first suit against Palmdale in 2012.

“That’s just another way of saying we don’t want to have to pay attention to the poor neighborhood,” he said. “Does that make making decisions more difficult? Sure. But it also makes those decisions better because you’ve got every viewpoint at the table.”

Shenkman said that he is concerned that Bonta’s bill doesn’t go far enough to prevent elected city officials from drawing districts simply to protect their own seats. But splitting neighborhoods—even for the sake of unity—would be out.

Yet the idea of the state imposing its will on localities rubs some lawmakers the wrong way—including one with a record against gerrymandering.

Sen. John Moorlach, a Republican from Costa Mesa, sat on the Orange County Board of Supervisors in 2011, when a proposed district map grouped together the largely Republican Vietnamese community while splitting up the majority Democratic Latino voters. Moorlach cast the lone “no” vote, telling a reporter, “I just wanted to stay with my principles. I’m opposed to gerrymandering.”

Even so, he opposes SB 139. Moorlach said he supported two bills in 2016 that gave cities, counties, school and other special districts the option to appoint redistricting commissions.

“I appreciated that spirit,” he said. “But I get a little nervous about requirements—you shall versus you may.”


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MOORLACH UPDATE — Oversight for County Sheriffs — July 6, 2019

The joys of dealing with County Boards of Supervisors and independently elected countywide offices. I felt the tension shortly after being appointed to replace Robert L. "Bob" Citron on March 17, 1995. County Executive Officer Jan Mittermeier was good about reminding everyone that there was a significant difference in managing department heads she could appoint and those who voters elected. Obviously, there has to be some form of balance in the equation. The voters should have independently elected representatives and they should be good department managers.

For me, as the new Treasurer-Tax Collector back in 1995, I enjoyed a significant amount of oversight, including a Treasurer’s Oversight Committee, a Treasury Investment Committee, a quarterly review by Fitch Rating Services, regular internal audits, and the annual external independent audits. I also provided monthly reports and worked diligently with the County Executive Officer as a team player.

After being elected to the Board of Supervisors, I was on the other side of the equation. We had an elected department head that was not managing well. He tendered his resignation. Then he decided to renege and come back. I was Board Chairman at the time and I ordered the locks on his door to be changed. Awkward (see MOORLACH UPDATE — John Williams — February 8, 2012). I did not pursue the position of a County Supervisor to tangle with independently elected countywide officials.

I also found myself and my four Board colleagues dealing with a Sheriff who, among other awkward personal decisions, had more than 30 lawsuits regarding the culture in the jails, the murder of John Derek Chamberlain in the Theo Lacy Jail while Deputy Sheriffs were looking away, and a concern of truthfulness about a foreign trip to visit a contracting DNA lab (see MOORLACH UPDATE — Property Tax Due Date — April 10, 2013).

Consequently, I looked at a number of oversight committee models. A citizens oversight committee was not the preferred method, but the Michael Gennaco Office of Independent Review (OIR) in Los Angeles County seemed the best at the time. But, several years later, even Mike Gennaco, its initiator, could not harness then-Undersheriff Paul Tanaka; and now former Los Angeles Sheriff Lee Baca is facing prison time.

With all of the turmoil, I led the effort to establish an OIR (see MOORLACH UPDATE — Money for Nothing — September 2, 2015, MOORLACH UPDATE — Civilian Oversight — June 15, 2015, MOORLACH UPDATE — SB 593 — June 10, 2015, and MOORLACH UPDATE — OIR/Retroactive Anniversary — July 20, 2012).

So, while remaining relatively quiet at this week’s Senate Public Safety Committee, on which I serve as Vice Chair, when AB 1185 (McCarty) came before us, I shared my former experiences and supported the bill. This makes me the only Republican legislator to date to do so.

Coming from a county that had an independently elected rogue Treasurer that forced it into Chapter 9 bankruptcy, I believe there should be balance between the Board of Supervisors, the public, and the countywide electeds. Some form of oversight is one potential tool. The Sacramento Bee covers this discussion in the piece below.

‘Literally, our sheriff locked the doors’: Sacramento County grand jury calls for new oversight



The Sacramento County Grand Jury endorsed calls for more oversight of the Sheriff’s Department in a new report that recommended creating a separate commission to increase accountability of the law enforcement agency.

The jury investigated citizen complaints of Sacramento County Sheriff Scott Jones and analyzed whether Jones illegally denied former Inspector General Rick Braziel access to the department’s buildings, records and personnel last year. Jury members also analyzed whether the county Board of Supervisors was sufficiently monitoring the department.

The grand jury determined Jones did not break the law when he locked Braziel out of the Sheriff’s Department last year. Members of the grand jury wrote that the county would need new authority to prevent a sheriff from obstructing a similar investigation in the future.

The grand jury, a commission of volunteers that issues investigative reports on local government, encouraged the Board of Supervisors to create some kind of law enforcement oversight commission by the end of this year. It recommended the county give the commission power to investigate the Sacramento County District Attorney’s Office as well.

“Sacramento County-based oversight of the district attorney and sheriff is inadequate given the potential impact their policies and action could have on the communities they serve,” the report read. “The Board of Supervisors should initiate action to create a Sacramento County oversight commission with responsibilities pertaining to the district attorney and sheriff.”

The Board of Supervisors appointed Braziel, a former Sacramento police chief, as an inspector general to investigate deputies’ use of force when officers shot an emotionally disturbed African American man on Highway 50 in May 2017.

Jones locked Braziel out of the department in August 2018 after Braziel concluded his investigation into the shooting but before Braziel’s contract with the county expired. Jones in January alleged that Braziel rushed the report to help him win a contract with another police department.

The grand jury’s recommendation for new a commission coincides with efforts by Assemblyman Kevin McCarty, D-Sacramento, to create oversight boards equipped with subpoena and investigative powers.

The measure aims to give county boards of supervisors or other interest groups more authority to investigate sheriffs, who often are among the most powerful local elected officials in California’s 58 counties. Typically, sheriffs answer to voters every four years during elections and to boards of supervisors when they write budget requests.

“This can only increase public trust,” McCarty said. “It’s much bigger than Scott Jones. He was a good example, and Exhibit A as far as the need for this, but there are other counties across California that show this policy is needed.”

McCarty’s Assembly Bill 1185 narrowly passed the Assembly last month, gaining just enough votes to move to the Senate.

It gained momentum at the Senate Public Safety Committee last week, where it passed on a 6-1 vote.

McCarty this week cited Jones’ decision to lock out Braziel in encouraging the committee to pass the bill.

“Literally, our sheriff locked the doors and didn’t allow an inspector general to do his job anymore,” McCarty said at the committee hearing.

The sheriff’s office did not immediately respond to requests for comment, but Jones previously shirked the idea of third-party supervision in December.

“I’ve been described as rogue, authoritarian, a dictator, a mini-Trump,” he said, speaking to the County Board of Supervisors. “Racist, we’ll add that. All because I won’t voluntarily allow independent oversight of the sheriff’s department.”

The California State Sheriffs’ Association has called the proposed oversight bill “unnecessary.”

“Counties have already created different models of civilian oversight without the need for specific legislative authorization,” said Cory Salzillo, legislative director for the association. “The attorney general has supervision of the sheriffs if there is any question about oversight or accountability. Additionally, the Board of State and Community Corrections, civil grand juries, protection advocacy agencies inspect and oversee sheriff operations.”

Sen. John Moorlach, R-Costa Mesa, joined Democrats in supporting the bill and cited his experience as a member of the Orange County Board of Supervisors in describing why he backed additional oversight of elected sheriffs.

During Moorlach’s tenure in local government, he said Orange County faced dozens of lawsuits involving its sheriff’s department. He described the county’s civil grand jury as “limp.”

“Saying the supervisors have the ability to control the sheriff through the budget, that’s bogus. You just cannot cut public safety in the budget,” Moorlach said.

The jury pointed to civilian commissions created throughout California that work as third parties to investigate public concerns of elected law enforcement officials. Oversight commissions In Los Angeles, Orange County and San Diego, for example, are entitled to review citizen complaints, analyze policies and procedures and facilitate trust between law enforcement and the public.

“A commission could assist all parties in determining what works and what might be changed to achieve greater understanding, tolerance and trust between the parties,” the report continued. “Meetings would generally be open, involve the public, law enforcement, and hear testimony from experts and laypersons.”


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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 and . And I was also on The Larry O’Connor Show on July 1st at 11:00 a.m. where I raised the subject (see

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

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



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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MOORLACH UPDATE — Cellphone Rate Increase — June 28, 2019

Chances are you are reading this on a smartphone. Guess what? Your cellphone has probably become an essential component of your daily routines, but you’re going to pay a higher monthly rate next year (see MOORLACH UPDATE — Clean Drinking Water Funding — June 11, 2019).

Voila! Another regressive tax brought to you by the supermajority party.

Why? Because Sacramento could not see certain systemic trends occurring with the current funding methodology. But, these trends have been occurring for some two decades. Slow to act, but when it does, the bureaucracy hammers you with a major fee hike. The justification? They haven’t increased the fee in decades.

Unfortunately, voting for the 911 tax increase would be akin to approving a "black box." We know that a robust 911 telephone service must be in place. We know that technology has advanced. The unknown is what technology the state will acquire and what the acquisition and maintenance will cost. We know money will go in and that something will come out of the black box, but its internal workings and implementation are opaque.

Consequently, not being provided details and a plan, I voted in opposition to another potentially expensive state IT program, a la the DMV. The state is pursuing this as the private sector is rolling out virtually free applications of a similar nature. Government Technology provides more on the subject in the first piece below.

Now that we’ve opened the topic of an Orange County Veterans cemetery, My News provides another perspective on the three potential sites in the second piece below (see MOORLACH UPDATE — Review of Recent Votes — June 27, 2019).

Bill Would Provide $172M for California 911 System Upgrade

The State Senate last week approved a flat, monthly fee on every cellphone and landline starting in January 2020, which would upgrade the state’s current 911 system. The bill awaits Gov. Gavin Newsom’s approval.


A bill awaiting the governor’s signature would provide around $172 million in funding to update the state’s 911 system.

The Senate last week approved a flat, monthly fee on every cellphone and landline ranging from 34 cents to 80 cents (about double the current fee) starting in January 2020, which would upgrade the state’s current 911 system. The bill awaits Gov. Gavin Newsom’s approval.

The action comes on the heels of the state’s worst fire season, which officials say compounded the already degrading analog-based system, according to a California State Association of Counties press release. The new system will be digital and will be designed to handle photographs, videos and text messages, according to the bill’s text.

The state budget — approved by the Legislature earlier this month — allots $172.3 million for the state Office of Emergency Services (which will oversee the fees that are funding the new system) to improve emergency communication and warning systems, supporting the Mutual Aid system and resource pre-positioning (say, during red flag fire weather warnings), and fund relief efforts after disasters, according to the budget.

The annual revenue needed for the existing system, which handles over 27 million calls per year, is roughly $100 million per year, California Office of Emergency Services spokesman Jonathan Gudel said in an email Wednesday. As the department implements Next Generation 911, the annual revenue needed is estimated to be below $175 million per year during the transition when both Legacy 911 and Next Generation 911 will both be active. After Legacy 911 components are decommissioned, the new system is expected to cost an average of $150 million per year, he said.

“9-1-1 is a service and should not be viewed as a lump sum project, but an ongoing service,” Gudel wrote.

This new data-based infrastructure, called Next Generation 911, is supposed to be faster and more resilient.

Here’s how it works, according to (a national program that operates within the National Highway Traffic Safety Administration at the U.S. Department of Transportation):

The public sends information and data-like video footage to 911. Next Generation 911 call centers receive and triage information and rich data. Wireless networks share the information and rich data from 911 with first responders, who then are alerted to emergencies with real-time, critical information and data. The new infrastructure is also slated to improve dispatchers’ ability to help manage call overload, natural disasters, and transferring of 911 calls and jurisdictional responses based on location tracking.

The current system is prone to outages during disasters including wildfires, according to the California State Association of Counties. In 2017, more than 28 million calls were placed to 911, or 77,000 calls per day. The current system has an average of 15 network outages per month, equaling 255 hours per month that 911 is out of service, according to the press release.

Lawmakers who opposed the fee — Republicans Sen. Patricia Bates, Sen. Andreas Borgeas, Sen. Ling Ling Chang, Sen. Shannon Grove, Sen. Brian Jones, Sen. John Moorlach, Sen. Mike Morrell, Sen. Jeff Stone, Sen. Scott Wilk and Democrat Sen. Melissa Hurtado — preferred dipping into the state’s $21.5 billion surplus. But Democrats said they didn’t want to use short-term surplus for an ongoing expense.

Mike Mohler, deputy director of communications for Cal Fire, said the agency is in full support of the legislation, saying the 911 system is a cornerstone of public safety.

“We’re excited as it makes a difference, not only in public safety but also in response time for first responders,” Mohler said in a phone interview Tuesday. “Without the new investments, the 911 system is going to continue to deteriorate and notably, can cost lives and is absolutely a key factor in public safety and emergency response.”

Last summer, former Gov. Jerry Brown attempted the same fee increase to update the system, but the proposals were shut down in the Legislature.

OC Cemetery District Head Makes Case for Vets Burial Place in Anaheim

The general manager of the Orange County Cemetery District discounted some of the concerns state lawmakers have for a proposed veterans cemetery in Anaheim Hills.

A site in Irvine has been caught in a political power struggle over three proposals there. Orange County Supervisor Don Wagner and state Sen. John Moorlach, R-Costa Mesa, have been pushing for the site in Gypsum Canyon in Anaheim Hills as an alternative.

Assemblywoman Sharon Quirk-Silva told City News Service that one of the main concerns about the Anaheim Hills site is it would not be a strictly veterans cemetery as proposed, so veterans would not be able to use their benefits to pay for burial there.

The difference in cost from a military-funded burial and a private one can be as high as $8,000, said Quirk-Silva, a backer of the Irvine site, along with Sen. Tom Umberg, D-Santa Ana, and Assemblyman Tom Daly, D-Anaheim.

Tim Deutsch, general manager for the Orange County Cemetery District, said that would not be a problem at the Anaheim Hills site because half of it would be dedicated for veterans and would qualify as a state veterans cemetery.

Umberg told City News Service that he does not consider the Gypsum Canyon proposal a veterans cemetery. He also said he prefers Irvine’s sites because of the proximity to the Orange County Great Park, which is built on the former El Toro military base.

The Anaheim Hills site “has no connection to any military historic site like” El Toro, Umberg said.

“The veterans do want a cemetery with some connection to a military experience and El Toro is a site for tens of thousands of Marines which has great relevance and reverence because it was a site from which they departed to go to Vietnam and returned from Vietnam,” said Umberg, a retired U.S. Army colonel.

Umberg also argued that the Anaheim Hills site is within 75 miles of the national military cemetery in Riverside, which is prohibited by the federal Veterans Administration.

Deutsch, however, noted that the proposal in Anaheim is a state veterans cemetery, not a federal veterans cemetery.

Umberg also said the Amended and Restated Development Agreement, or ARDA, site in Irvine is “the only one that’s been really studied,” which is another reason the Democratic lawmakers favor it.

Umberg also said the hilly topography of the Gypsum Canyon site may make it “the most expensive site of” all.

Deutsch said the district hired a consultant this month to begin analyzing how much it would cost to convert the property into a cemetery.

As for Wagner’s concerns that the ARDA site would cost $90 million to clean up to use as a cemetery, Umberg said the cost may be much lower.

“There are a number of ways to make it much less expensive by incorporating the runway into the memorial,” Umberg said.

“And a good chunk of $20 million of it is inflation since the study was done four years ago,” and those rates of inflation may not apply, Umberg said.

“The experts estimate the cost to getting the cemetery in place where it can be useful is $50 million,” Umberg said.

And “that’s roughly the equivalent of what some folks believe” a newly proposed horseshoe-shaped site at the Great Park that was a taxiway, Umberg said.

“There’s no real study of toxins that exist there so we don’t know,” Umberg said.

Umberg predicted that the bill designating the ARDA site for the veterans cemetery will be sent to the governor and “our veterans will have a final resting place here within the next five years some way or another.”

Deutsch said the county needs a new cemetery whether it is for veterans or not because the county will run out of space by 2030. The Anaheim Hills site, he said, satisfies both problems.

“Bottom line is veterans deserve a cemetery and whoever can facilitate that we’re in support of,” Deutsch said.

The Anaheim Hills site would “be a unique opportunity… where families could bury their veteran and take a close walk or drive to visit other relatives, which is something you can’t do at any other veterans cemetery,” Deutsch said.


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