MOORLACH UPDATE — State Budget Torpedo — January 1, 2019

Happy New Year!

On January 10th, California’s new Governor, Gavin Newsom, will be release his first budget. It may coincide with the instigation of a teachers’ strike for the Los Angeles Unified School District.

The outgoing Governor attempted to address retiree medical liabilities at the state level. However, he was bagged by the public employee unions. They agreed to a 4 percent withholding, after receiving a 9 percent pay increase. Can you say, “higher unfunded pension liabilities?” Gov. Brown should have had the state pay the 4 percent directly and only given a 5 percent raise. The overall current and future costs would have been much lower and the net take home pay for the employees would have been about the same.

I helped negotiate a similar strategy in Orange County back in 2006. Along with a number of other critical changes, Orange County was able to reduce its unfunded retiree medical from $1.4 billion to $430 million and reduced the annual required contribution by $100 million per year. This savings during my terms as Supervisor virtually replaced the loss sustained by the investment pool implosion under former Treasurer-Tax Collector Robert Citron’s watch back in 1994.

A similar 71 percent reduction in the unfunded retiree medical liability for LAUSD would result in a $10.65 billion reduction! If Gov. Brown would have negotiated a similar deal, the state’s savings would have been nearly $65 billion!

The LAUSD Board of Trustees has to focus on total compensation. Teachers receive attractive medical plans, generous defined benefit plans and competitive salaries. But, you can’t have all three. Something has to give. And, it will either happen in reduced wages or layoffs of the most recently hired teachers. If the new hires are terminated, future potential teachers will be discouraged from entering this industry. Why invest in five years of college when there is no job security? Such is the joys of the unions keeping mediocre teachers with longevity and eating their young.

It’s no wonder parents are clamoring for more charter schools, where the teachers’ union has no influence. I could go on (see MOORLACH UPDATE — $15 Billion Obligation — December 27, 2018).

The Los Angeles Daily News and the Pasadena Star-News at least provide sound counsel in their editorial below. Otherwise, Gov. Gavin Newsom will see his first budget torpedoed by a significant financial assist to bail out California’s fiscally distressed network of school districts.

OPINION

A UTLA strike will accomplish nothing. LAUSD, UTLA should compromise

By opinion |

https://www.dailynews.com/2018/12/31/a-utla-strike-will-accomplish-nothing-lausd-utla-should-compromise/

https://www.pasadenastarnews.com/2018/12/31/a-utla-strike-will-accomplish-nothing-lausd-utla-should-compromise/

On Jan. 10, the Los Angeles Unified School District could be hit with a teacher strike due to a failure of the district and the teachers’ union to reach a deal in contract negotiations.

A strike wouldn’t be in the best interests of anyone, and we encourage both sides to continue working toward a solution rooted in reality.

The reality is that the LAUSD’s finances are unsustainable as they currently stand. In fact, the district is on such poor fiscal footing that there’s a real possibility the district could be taken over by the state.

This summer, the L.A. Unified Advisory Task Force warned that the district’s budget “forecasts show it will have exhausted its reserve fund balance by 2020-21, will have a budget deficit of $400 million in 2020-21, and therefore be insolvent.”

The Reason Foundation has similarly noted that “in four years the combination of pension costs, health and welfare costs, and special education costs are projected to take up 57.5 percent of unrestricted general fund revenue … before the district spends a single dollar to run a regular school program.”

Most recently, state Sen. John Moorlach has warned that the district’s unrestricted net deficits have risen from $10.5 billion in 2016 to $19.6 billion in 2018.

Worse, none of these findings are all that surprising. In 2015, the Independent Financial Review Panel warned that the district faced “a significant structural deficit in its operating budget that threatens the District’s long-term financial viability.”

Fast forward to today: The district, for as bad a position as it’s in, is still offering LAUSD teachers a raise of 6 percent. But the United Teachers Los Angeles isn’t satisfied and has instead set a strike date of Jan. 10.

It’s not clear what a strike would accomplish beyond showing that the union is willing to disrupt the education of Los Angeles students.

In a discussion with members of our editorial board, the UTLA largely downplayed the fiscal realities of the district and instead argued for limits on charter schools and tax increases.

While those are all topics worthy of debate and discussion, we encourage UTLA and LAUSD to resume talks grounded in facts.

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MOORLACH UPDATE — $15 Billion Obligation — December 27, 2018

The Newport-Harbor Exchange Club held their annual fundraiser at the Lido Theater this month. This year’s feature was "All Square" (see https://www.imdb.com/title/tt6927880/). The definition for this term is "to mutually clear all debts or obligations." (Except for the rough language, the movie provided humor, the dark side of human ambition, and, perhaps, redemption from inappropriate cycles that can be generational, passing from the father to the son.)

While driving down the street, the main character notices someone who owes him money unloading a large television from his car. The frustration? How can he purchase a new appliance, when he owes money to someone?

How can LAUSD give pay raises to the teachers’ bargaining unit when it has obvious and massive debts that need to be reduced? LAUSD has created such a deep hole, every resident of the district would have to fork over more than $4,200 each to be "all square." A pay raise? A new television? Who are we kidding here? The OC Register (digital) provides my insights in the submittal below.

For more, see MOORLACH UPDATE — LAUSD vs. OC School Districts — September 18, 2018, MOORLACH UPDATE — Judicious Budget — December 18, 2018. and MOORLACH UPDATE — Masking Fiscal Problems — December 10, 2018.

OPINION

Can we prevent the LAUSD budget crisis from taking down the California state budget?

By JOHN MOORLACH | Orange County Register

https://www.ocregister.com/2018/12/24/can-we-prevent-the-lausd-budget-crisis-from-taking-down-the-california-state-budget/

Even as its teachers consider going out on strike, the Los Angeles Unified School District’s budget clearly is in crisis. The problem is so big it might wipe out whatever surplus the roaring California economy might generate in 2019 – and then some.

The LAUSD just released its Comprehensive Annual Financial Report, or CAFR, for the fiscal year ending June 30, 2018. As I have been predicting, the LAUSD’s new CAFR doubled the size of its negative Unrestricted Net Position (UNP), the best number I’ve found for judging financial soundness. The reason was, for the first time, municipalities are now required to include unfunded liabilities for retiree medical care on their balance sheets.

The unrestricted net deficits for 2016 and 2017 were $10.5 billion and $10.9 billion, respectively. For 2018 it is $19.6 billion, or 80 percent higher! That’s what a $15 billion obligation will do when it’s recognized.

In bureaucratic language, the CAFR itself explained, the negative UNP “is largely the result of net other postemployment benefit (OPEB) liability and net pension liability for various retirement plans.” They blamed this transparency on the recent accounting standard they just implemented.

According to Assembly Bill 1200 from 1991, called the Eastin Act, the state of California is required to maintain the financial soundness of public school districts. Since that year, nine districts have been given emergency loans under what’s called the AB 1200 System.

Until recently, CAFRs were hard to locate because they only were printed and likely lost to the world since many were not put on the internet. But here’s what I have been able to find:

· Oakland Unified’s UNP for 2003 was $48.7 million, in the negative. So the state’s 2003 emergency loan of $100 million was 205 percent of this deficiency.

· Vallejo City Unified’s deficit for 2004 was $16 million. So their 2004 emergency loan of $60 million was 375 percent of the negative UNP.

Looking at Oakland Unified’s history, doubling LAUSD’s $19.6 billion fiscal hole may require a $39.2 billion emergency loan from the state. Unfunded liabilities were not on the balance sheet in 2003; but even foregoing a multiplier, a $20 billion loan will be tough to make.

This coming year, the State of California might have a $15 billion general-fund budget surplus, plus the $15 billion in the Rainy Day Fund. Will this be sufficient to bail out the LAUSD?

What about the Public School System Stabilization Account from Proposition 2 in 2014, which was supposed to be on top of the Rainy Day Fund? According to a Nov. 14, 2018 report by the Legislative Analyst, “To date, these formulas have not resulted in any deposits being made into the school reserve.” The cupboard is bare.

In my October report on the CAFRs of all 944 California public school districts, I also ranked them by per-capita UNP. That was based on the population census of each district from the California Department of Education.

LAUSD ranked 922nd, at a negative $2,315 per capita, based on its 2017 CAFR; only a few districts were worse off. Using the LAUSD’s new 2018 CAFR, that number now jumps to a negative $4,180 per capita. This is what every man, woman and child would have to pay to get LAUSD out of its negative condition.

As 2019 progresses, revised data will come in for all the other 943 school districts, which will now include their respective retiree medical liabilities. If a substantial number of them also need emergency loans, where will that money come from?

For a partial solution, may I suggest that, as Gov.-elect Gavin Newsom crafts his first budget for release on January 10, he start funding the school stabilization account? Next, the new governor must assist the school districts in renegotiating retiree medical benefits, thus potentially reducing these unfunded liabilities.

California’s future is our kids’ future. So in addition to making sure our kids get decent educations, their districts should also be fiscally well managed and solvent. Don’t make the students suffer with the weight of unfunded liabilities on their tiny backs. The time to act is now.

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

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MOORLACH UPDATE — Motor Voter Accountability — December 21, 2018

Motor Voter is a mess.

It’s not like the Secretary of State wasn’t warned many times of the impending problems as the bill went through the legislature. And not just by Republicans, but by several immigrant groups and even the ACLU. They had serious concerns and some of those are now manifesting themselves. Rather than be the responsible and accountable manager of our voter registration process, Alex Padilla chose to ignore and brush off legitimate concerns. I’m not sure that’s how the person who is supposed to secure the most sacred duty of citizens should act.

Unfortunately, accountability in Sacramento is virtually nonexistent. Audit reports are produced, but it seems as if nothing is ever or rarely modified in the impacted departments according to the auditors’ recommendations. Recently we’ve seen it with Caltrans, the Mental Health Services Act funding accumulation, the California Department of Housing and Community Development, the DMV’s long lines, and the list goes on.

So, I’ve provided a little bit of accountability in a CalMatters submittal, which is the first piece below. First, who were the 15 Senators that voted against AB 1461 (2016)? All of the Senate Republicans, including myself, and one Democrat, Senator Monning. Second, if it is flawed, then discontinue it until the bugs are worked out. And third, make it an opt-in opportunity, not an opt-out corundum.

When I was interviewed by the Sacramento Bee on this subject, I agreed to be recorded (see MOORLACH UPDATE — Motor Voter Madness — December 6, 2018). During the lengthy interview, I bantered with the reporter and even jested that if he had suggestions for legislation to let me know (with a chuckle). He thought this was podcast worthy and you can catch it near the end of his recording, around the 17 minute mark, at https://soundcloud.com/ca-nation/ep6.

Around the Capitol is an insider’s publication, with paid subscribers, of goings on under the Dome. The publisher did a version of the People’s Choice Awards and recognized State Senators from both parties in three categories. I made it to two of them. Let’s just say that it is an honor to be recognized. I’ll just note that the list recognizes my gregariousness, something that may have been missed by well-intended reporters. The Nooner is the second piece below.

Merry Christmas!

 

 

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My turn: ‘Motor Voter’ was a disaster waiting to happen—and it did

Guest Commentary

By John M.W. Moorlach, Special to CALmatters

https://calmatters.org/articles/commentary/my-turn-motor-voter-was-a-disaster-waiting-to-happen-and-it-did/

In his re-election statement posted on the secretary of state’s website, Secretary of State Alex Padilla boasts: “In my first term, I’ve worked to expand access to the ballot box.”

Perhaps he can take credit for some gains, but his “motor voter” program is a disaster and ought to be shut until it is fixed. In September, the Department of Motor Vehicles admitted it made 23,000 erroneous registrations. Serious questions about the integrity of the program must be answered.

Expanding access is worse than worthless without voting integrity. This is not a partisan issue. It’s about protecting the righteousness of our election system, which is a sacred responsibility in a democracy and one that rests with the Secretary of State.

Although the DMV is a troubled department, Padilla must take ownership of Motor Voter’s problems. He sponsored the bill establishing the program in 2015, Assembly Bill 1461 by Assemblywoman Lorena Gonzalez-Fletcher, a San Diego Democrat.

Under the bill, when a citizen obtains or renews a driver’s license or state ID card, the DMV must automatically transfer voter registration information to the Secretary of State’s office.

At hearings on the bill, ACLU representative Raul Macias testified: “I think a key part that’s missing is we haven’t heard from the DMV about if they think they are capable of doing this and what is the accuracy of their data. That’s critical information.”

The ACLU’s concerns were prescient. It doubted the DMV’s ability to properly handle and transfer the necessary personal data to the Secretary of State.

The ACLU also pointed out that motor voter, as originally created on the federal level, envisioned an opt-in system, not the opt-out system California was putting in place. Huge difference. The problem with the opt-out program is it does not provide adequate protection against data errors.

The newly registered voter receives a postcard in the mail stating they have been registered to vote. If they object, they need to notify the local registrar of voters to be removed from voter rolls. In the end, large numbers of non-citizens unwittingly are added to the state’s voter files, ironically putting themselves at risk of deportation.

In hearings on the bill, Padilla actually testified twice that AB 1461 would make the registration process more secure. Asked how much confidence he had in the DMV’s record-keeping systems, Padilla replied: “I don’t assume the incompetence of the DMV.”

Apparently, he never has spent hours in a DMV line, as many Californians have done. The situation was so bad in September that Gov. Jerry Brown ordered an audit of the DMV.

The ACLU said there were more than 3.3 million lawful permanent residents in California and that even a small margin of error could result in hundreds or more mistakenly added to the voter rolls. That scenario has now played out.

Curiously, the bill was amended late in its legislative process with provisions protecting noncitizens from prosecution under state law, although not federal law.

Another late change: cutting out a provision requiring the DMV to provide the Secretary of State with proof the newly registered person is a citizen eligible to vote. The final wording specifically said the DMV was not required to determine eligibility for voter registration and voting. Rather, the Secretary of State is solely responsible for determining eligibility.

In other words, Padilla, as our Chief Elections Officer, is responsible for ensuring the integrity of our elections system, including the registration process.

On my state website, I have posted letters related to the Motor Voter disaster. On Nov. 9, Padilla wrote to me, “I share with you my deep frustration with these persistent errors by the DMV” and the California Department of Technology, which supervises the DMV’s data systems, “and have called for an independent third-party review.”

That’s not enough. A major embarrassment was bound to happen. The Motor Voter must be suspended until it’s fixed, and it’s Padilla responsibility to fix it. And legislators should quickly take up Senate Bill 57 by Senate Republican Leader Pat Bates, of Laguna Niguel, which would change Motor Voter to an opt-in system.

Sen. John M.W. Moorlach is a Costa Mesa Republican representing the 37th Senate District,  senator.moorlach@senate.ca.gov. He wrote this commentary for CALmatters.

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2018 LEGISLATORS OF THE YEAR AWARDS 

For the Noonerites who have been around for a while, you recall with fondness the California Journal’s recognition of legislators. Several years ago, I decided to carry on the tradition with the “editorial board” being Nooner readers. I keep it to three categories–most effective, truest to party, and who’d be fun to hang out casually with. I don’t carry on the Journal’s old categories or laziest and other negative characterizations.  They were fun to read, but just don’t fit in to the nature of today’s Nooner.

We also recognize both Democrats and Republicans. The Nooner’s readership covers the entire political spectrum as many of you regularly remind me. By sheer numbers, I don’t need to tell you that Democrats would be at the top if the partisan categories were not separated.

In November, 172 readers voted on legislators from each party and were asked to provide a rationale for their votes. I purposely did it after the election as I didn’t want either the votes or rationales given to be used in any manner in campaigns.

So, here we go!

Most Effective Senate Democrat

  1. Toni Atkins(D-San Diego)
    – “Ushered in a new era in the Senate by breaking barriers!”
    – “Unfortunately she gets her bills through.”
    – “Irrespective of her current title, in my experience she is fair, listens to all sides and follows her conscience.”
    – “He’s not afraid to charge into unchartered territory and bring together unlikely parties.”
  2. Scott Wiener(D-San Francisco)
    – “Worked harder than any other member to pass his legislation.”
    – “He got the most bills by far off of suspense. Whether they were criminal justice issues, LGTBQ or Net Neutrality… he was the Suspense file winner.”
    – “Wiener takes on the big stuff, builds broad coalitions and while he always doesn’t get it sent to the Gov’s desk, shakes things up.”
  3. Holly Mitchell(D-Los Angeles)
    – “As budget chair, she skillfully balanced the needs across multiple areas of the budget while staying true to her roots – helping the underserved.”
    – “Tireless and passionate.”
    – “She truly is the ‘moral compass’ of the Legislature.”

Most Effective Senate Republican

  1. Anthony Cannella(R-Ceres)
    – “If you don’t swing the bat, you’re not going to get a hit. Cannella is always willing to suit up for the game to get on base and be at the table.”
    – “Cannella was never intoxicated by the idea of being a Forever Elected. This gave him the intellectual and political freedom to be bold.”
    – “Effective in the sense that he was able to reach across the aisle at times and get things done for his district.”
  2. John Moorlach(R-Irvine)
    – “Consistently a sensible voice surrounding financial issues. His opinions are taken seriously by both sides of the aisle.”
    – “Credible and knowledgeable on issues he embraces.”
    – “As usual, stood out as the most gregarious Republican Senator”
  3. Scott Wilk(R-Santa Clarita)
    – “You can’t but him in a box – pragmatic conservative but willing to work both sides of the aisle.”
    – “He is one of the only normal ones. His legislation is thoughtful, substantive and has bipartisan support.”
    – “You always know where you stand with him and he takes positions based on where he thinks his district will be.”

Truest to Party Senate Democrat

  1. Holly Mitchell(D-Los Angeles)
    – “For constantly being present in her district making herself accessible to all.”
    – “Badass working for people of color, women, single moms, etc., in addition to more mainstream Dem planks.”
    – “She focuses on people in poverty who do not have much power to fight back against injustice.”
  2. Ricardo Lara(D-Long Beach)
    – “For making “progressive” mainstream, and for carrying the torch on Medicare for All.”
    – “No Senator better represents Democrats’ ability to bring all groups to the table without compromising our values of inclusion and respect for all.”
    – “Socialized healthcare.”
  3. Kevin de León(D-E. Los Angeles)
    – “Progressive champion willing to step out of line to run a long shot campaign just to get DiFi to tilt left.”
    – “A rising star in the progressive and immigrant movement.”
    – “Demonstrated to the world what real California Democratic Values look like.”

Truest to Party Senate Republican

  1. Jim Nielsen(R-Gerber)
    – “Sen. Nielsen has provided a consistent and measured conservative voice for decades.”
    – “Water storage.”
    – “Bless his old-man heart, he’s an old-school Republican until his last breath.”
  2. John Moorlach(R-Irvine)
    – “Fiscal conservative who is as consistent as they come.”
    – “More pragmatic than believed but will not compromise on principles.”
    – “Keeps the GOP compass intact, but can still maneuver around the Capitol.”
  3. Joel Anderson(R-Alpine)
    – “Pro-business, against raising taxes…follows his beliefs even if they aren’t always in his best interest…”
    – “As pro-Trump as you can get.”
    – “Can be a surprising vote for bills of the Democrats.”

“Who Would You Like to Have a Beer, Tea, or Coffee With?” – Senate Democrat

  1. Ben Allen(D-Santa Monica)
    – “He seems rational and fun.”
    – “Has a half-hour meet and greet or bill conversation ever really scratched the surface of what lies beneath? Nope. Scott Wiener close second.”
    – “In it for all the right reasons, smart, fun, and solid.”
  2. Ricardo Lara(D-Long Beach)
    – “I mean……come on. I think we all secretly wish Lara was our gay best friend.”
    – “He’ll spill the tea!”
    – “Laugh out loud funny!”
  3. Mike McGuire(D-Healdsburg)
    – “It would just be so entertaining.”
    – “He is a refreshing voice and personality in the normally staid Senate.”
    – “He is approachable and eager.”

“Who Would You Like to Have a Beer, Tea, or Coffee With?” – Senate Republican

  1. Anthony Cannella(R-Ceres)
    – “A good guy who is a fellow Aggie!”  (no, I didn’t write this one)
    – “Guy’s gonna be missed.”
    – “What are his thoughts on the demise of his party?
  2. Andy Vidak(R-Hanford)
    – “Easily the most relatable Senator to “normal” people.”
    – “He’s just a farmer. The man hasn’t changed since he won the special against Leticia when Rubio resigned in ’13. Instead of becoming a lobbyist/consult, he’ll probably just head back to Hanford and farm. probably drinks bud or an ice cold Coors Banquet.”
    – “Can it include a trip to the farm? Fun-loving and smart.”
  3. Scott Wilk(R-Santa Clarita)
    – “Smart, interesting and seems like he’d be funny.”
    – “Seems like a very reasonable Jeb-Bush-style moderate conservative.”
    – “Wilk has a quick wit and is very funny!”

 

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MOORLACH UPDATE — Judicious Budget — December 18, 2018

One of the joys of having managed a $7 billion investment portfolio of cash equivalents is that you become very familiar with the yield curve. On rare occasions, you get to observe what is known as an inverted yield curve. When you Google this phenomenon, here’s what pops up:

An inverted yield curve is an interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the same credit quality. This type of yield curve is the rarest of the three main curve types and is considered to be a predictor of economic recession.

Inverted Yield Curve – Investopedia


https://www.investopedia.com/terms/i/invertedyieldcurve.asp

The key observation or takeaway is an inverted yield curve “is considered to be a predictor of economic recession.” It doesn’t help when the stock market has been going down and that housing sales have gone flat. All three are signs that government budget officers should be taking into account when they make their forecasts.

Here’s a recent chart that shows recessions occurring directly after an inverted yield curve. The recession of the early 1990s impacted my practice. It even gave me a little bit of time to run for Orange County Treasurer-Tax Collector in 1994, when the country was exiting the downturn and the economy was starting to heat up. Federal Reserve Board Chairman, Alan Greenspan, then started raising short-term interest rates to cool down the potential for inflation, which then caused the Orange County Investment Pool to implode (see MOORLACH UPDATE — The Tarnished State — December 17, 2018).

Here’s a similar graph, although not current to today, that may be easier to read:

A phrase we used often is “the trend is your friend.” Well, you can see where the trend line is going from these two charts. So you can see why the editorial board for the OC Register and The Sun chime in with their words of caution in the piece below.

The best place to be before a recession is having high cash balances and liquidity. This will allow you to acquire goods at a lower price as the economic downturn provides distress sales that you can take advantage of. It’s also a good time for governments to build infrastructure, when builders are looking for work for their companies, and are willing to do so with more competitive bids.

It’s not a good idea to be maxed out on your debts when a recession arrives. You just may become one of those distress sellers as you seek liquidity to make the high monthly interest and principal payments. Regretfully, this is where most of California’s school districts find themselves.

The Los Angeles Unified School District just released its Comprehensive Annual Financial Report (CAFR) for June 30, 2018. The LAUSD Unrestricted Net Deficit for 2016 and 2017 was $10.5 and $10.9 billion, respectively. For 2018, it’s $19.6 billion. That’s what adding unfunded retiree medical liabilities to the balance sheet will do (see MOORLACH UPDATE — Masking Fiscal Problems — December 10, 2018).

The LAUSD balance sheet has a new line in the Liabilities section: “Net other postemployment benefits liability,” with an amount of $14,968,510,000.

School districts cannot technically file for Chapter 9 bankruptcy, as they are agencies of the state. The state has to step in and assist. But, in Sacramento, the cupboard is currently bare in the schools’ Rainy Day Fund. Let’s hope a judicious budget can be assembled between now and June. Our new Governor will have to keep the cupboards stocked. We’ll see the first version of his Budget on January 10th.

OPINION

Newsom must follow Brown’s lead in budget judiciousness

By THE EDITORIAL BOARD

https://www.ocregister.com/2018/12/17/newsom-must-follow-browns-lead-in-budget-judiciousness/

https://www.sbsun.com/2018/12/17/newsom-must-follow-browns-lead-in-budget-judiciousness/

Incoming Gov. Gavin Newsom and the Legislature’s Democratic supermajorities certainly have a lot going for them. But they must take the state’s budget and full financial circumstances seriously.

While much has been made of California’s budget surplus and the state of the annual budget relative to past budgets, this is a time for vigilance and greater fiscal restraint.

Last month, the nonpartisan Legislative Analyst’s Office released a report entitled “The 2019-20 Budget: California’s Fiscal Outlook,” which lays out long-term analyses of state spending.

While noting that “the budget is in remarkably good shape,” and that the state’s “longer-term outlook is positive,” the LAO rightly warns that “the state’s budget condition can change quickly.”

Though the state is projected to have reserves of $14.5 billion by the end of fiscal year 2019-20, as well as $14.8 billion in additional resources to allocate in 2019-20, the reality is that even a smaller recession could easily wipe out this situation.

The LAO itself notes that in November 2000, they projected a surplus of $10.3 billion in 2001-02. However, this projection didn’t translate in the real world.

With the bursting of the dot-com bubble, instead of operating with a $10.3 billion surplus, the state ended up having to contend with a $12.3 billion deficit.

With the U.S. economy now in the midst of the second-longest period of economic expansion on record, it’s inevitable that an economic downturn is around the corner.

To his credit, Gov. Jerry Brown has long made a point of underscoring the idea that California must set itself up as best it can to handle the next recession.

Setting aside the merits of any particular program or spending commitment, it hardly seems reasonable for the state to ramp up spending in the name of helping people if there’s a serious risk such programs would have to be dramatically cut off as soon as a downturn happens.

For his part, Newsom has indicated a commitment to continuing the approach of Brown.

“All of this will be whittled down and we all will live within our means,” he told the Sacramento Bee of Democratic spending priorities. “We’re not going to deviate from being fiscally prudent.”

While that probably sounds to most Californians as a common-sense notion, common sense often appears to be in short supply in the Legislature.

One legislator who rightly sees what’s at stake, Sen. John Moorlach, R-Costa Mesa, has noted that while the Democrats won’t need a single Republican vote to ram through a spending spree, the state’s finances are already in precarious shape.

Moorlach has released financial reports on state and local governments revealing just how imbalanced government balance sheets are across California. California’s large and rising pension obligations alone are a cause for concern and will be for years to come. When one adds in medical benefits for retired government workers, the bleak picture only becomes worse. Add in any economic downturn in the next year or two and things can get bad enough even with currently spending obligations.

Accordingly, we urge Newsom to back up his talk of restraint and keep the Legislature in check.

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MOORLACH UPDATE — The Tarnished State — December 17, 2018

The Full Measure TV news show, hosted by Sharyl Attkisson, provides a take from someone on the east coast of California in “The Tarnished State” at http://fullmeasure.news/news/cover-story/the-tarnished-state. It is the first piece below. Orange County’s bankruptcy is invoked.

In December of 2014, twenty years after the December 6, 1994 Chapter 9 bankruptcy filing by the County of Orange, the second piece below appeared in Institutional Investor. Institutional Investor Network is behind a paywall. I issued an UPDATE on December 20, but for some unknown reason it did not get posted to my blog. Consequently, I’m providing it now as an opening LOOK BACK edition for a series on the events leading up to the infamous event, which will commemorate its 25th anniversary next December.

Like many movies, I’ll start with the conclusion first and then work my way from the beginning up to the big event.

Twenty-five years ago this month, I assembled about 60 friends, clients, and politically involved individuals in Rich and Pam Boyer’s living room, literally a short walk from my District Office. Richard G. Boyer, C.P.A., hired me in 1976, as I was concluding at CSULB. He would merge with the second oldest firm in Long Beach, Balser, Horowitz, Frank & Wakeling, and I would be admitted as a partner in 1984.

The discussion that evening was animated. I provided a business plan for the possibility of running for Orange County Treasurer-Tax Collector in the upcoming June, 1994 Primary Election. Overall, the sense was to move forward, and the rest, as they would say, is history.

The piece below provides an excellent review, in a very concise fashion, with wisdom that we still need to implement today.

If you want to know why I’ve given you the Unrestricted Net Positions of all 50 states, 58 California counties, 58 county departments of education, 72 California community college districts, 482 California cities, and 944 California school districts, the answer is simple. Allow me to quote from the piece:

Timely accurate information – Everyone along the chain of command should err on the side of unbridled curiosity, so as to strive to understand, and keep in check, unknown or inadvertent sources of risk.

The key lesson is the use of leverage. Leverage is debt. And, too many of our municipalities, from states to school districts are mired in it. This is a source of risk that will impact you, no matter where you live in California.

Let me give you an example. Last week, Sacramento City Unified School District publicly announced it will run out of cash in November of 2019. I informed you. This district ranked number 867 out of 944 (see MOORLACH UPDATE — California School District Rankings, Group 13 — August 28, 2018). This district received a disturbing audit report from the Fiscal Crisis and Management Assistance Team warning that, “without action, state intervention is certain.”

Some acronyms are used in the piece. Here is a glossary:

GSE = Government-Sponsored Enterprise, include Federal National Mortgage Association (Fannie Mae) and Government National Mortgage Association (Ginnie Mae) which were introduced to improve the flow of credit in the housing economy, while also reducing the cost of that credit.

CDO = Collateralized Debt Obligation

GASB Statement 31, which implemented fair value standards for investments, is a promulgation I’ve taken ownership of, see MOORLACH UPDATE — We’re Out! Sort Of — July 2, 2017. Here is the pertinent quote from an April, 1994 piece in The Wall Street Journal:

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 Tarnished State | Full Measure

http://fullmeasure.news/news/cover-story/the-tarnished-state

California has a new governor and he faces a host of challenges. The California Dream has fallen out of reach for many with the high cost of housing, health care and energy and problems with water, schools, and illegal immigration. Because of its size, what happens in California tends to have impact beyond state borders. In 2017, California’s economy was fifth largest in the world, right behind Germany—beating out Great Britain. Today, we investigate how the Golden State has become the Tarnished State.. and is on a mission to regain its shine.

Sharyl: California is known for Sun Fun and Lifestyle. It’s home to some of the world’s great innovators. But now more than ever, California is a state of wild contrasts. In the shadow of lavish neighborhoods with multimillion dollar homes are sprawling encampments filled with workers and families living out of campers and cars.

Sharyl: We’re in the heart of Silicon Valley. Google headquarters is just a couple of miles away. And this is one impact of the fact that so many workers in the state can’t afford to buy a house or even rent an apartment.

Sharyl: California’s homeless population spiked nearly 14% in 2017 — reaching 134,000.

Sharyl: What do you think is the number one challenge?

John Cox: making sure that the forgotten California the middle class can actually make a life in this state.

Sharyl: Attorney and businessman John Cox, a Republican, lost the Governor’s race to Democrat Gavin Newsom— who declined our request for an interview about California’s future. Cox campaigned against the 40% gas tax hike under Governor Jerry Brown— who also declined our interview request. California’s state tax on a gallon of gas is now 55.5 cents.

John Cox: It’s the cost of gasoline. It’s the cost of housing. It’s being driven up by regulations, by impact fees, by litigation, by delay.

Sharyl: The Golden State has racked up a growing list of troubles.

It’s home to nearly one-third of the nation’s welfare recipients, more than 2 million illegal immigrants, and one in four of America’s homeless. California residents pay among the highest taxes, but one in five lives in poverty. Its public schools rank in the bottom ten.

And it’s almost dead last when it comes to affordable housing. This modest two-bedroom house in Palo Alto was on the market for nearly 3 million dollars during our visit.

Cox: Half of the people in this state are either planning the move or are contemplating a move out of state

Grimes: Most people in the rest of the country have heard that we are the Golden State.

Sharyl: Katy Grimes is an investigative journalist who covers California politics.

Grimes: And I think it really was at one time the land of opportunity and the land of innovation. And today we are a state that is so highly regulated. We’re losing businesses, we’re losing residents, we’re highly taxed. It’s changing before our very eyes.

Sharyl: Grimes says one of California’s most looming problems is future payments owed that it cannot make.

Grimes: We now have the largest state budget in history, $200,000,000,000 but we also have a trillion dollars of unfunded pension and healthcare liability that is not being addressed.

Sharyl: What does that mean? I mean, people hear about unfunded liabilities, in simple terms what does that mean if you have a trillion dollars in liabilities?

Grimes: It means we’ve got a very, very large government workforce that were promised these extremely generous pensions. What that means is we’ve got all these future retirees that California has not figured out how they’re going to pay.

Sharyl: For all the pessimism, we found a mix of concern and optimism among Californians we spoke to.

Sharyl: What’s your view of sort of the economy of California and how livable it is?

Diana: I think it’s really hard. I think you need to have two parents working and it’s very expensive compared to other states that we’ve lived.

Matthew Borlcky: I mean it’s, it’s hard to get even apartments houses right now, but just, I think living in general California, it’s nice, but you need to have a household with multiple incomes.

Jonny Hayworth: Definitely some businesses moving out of California just because of the livability problems. But I definitely think that California is still a growing economy and you know, you won’t find any shortage of industrious kind of entrepreneurial people.

Sharyl: Is it accurate in your view to say that the criticisms of California and where it’s future is going are exaggerated or overblown?

Jonathan Lansner: Definitely.

Sharyl: Jonathan Lansner is a business columnist at the Orange County Register newspaper.

Sharyl: The conservatives seemed to be more concerned and worried and negative, and liberals seem to be less concerned and more positive?

Lansner: Let’s just say fiscal critics that tend to fall on the conservative side of the question. They are particularly concerned that state government is too big, too unwieldy and has some hidden costs that are going to come back to haunt all people of California in the coming years. I think on the liberal side, there are people who would probably argue that we’re not spending enough or spending it in the right ways. No place is perfect. This place has as many warts as, as any other, particularly with the size.

Sharyl: As a business reporter, Lansner views California’s economy as nothing short of amazing. When Governor Brown was elected in 2010, the housing industry had tanked. California was spending $27-billion dollars more than it had in income from taxes. Today, the state is running a $6-billion surplus— not counting that pesky pension liability. Unemployment is low and millions of jobs have been created.

Lansner: The recovery in the California economy, which certainly filters down to many, not all neighborhoods, is somewhat truly miraculous when you consider what people were saying a decade ago. And I think when you go back to politics, those who promised us that if we did not change the way the state acted, we were going to have financial ruin; it’s a little bit of that “Chicken Little” right now.

Sharyl: Then again— they called John Moorlach “Chicken Little” back in 1994.

Sharyl: You predicted that Orange County bankruptcy

John Moorlach: Pretty much.

Sharyl: But people scoffed at you at the time

Moorlach: Thought I was a gadfly.

Sharyl: At the time, Moorlach was running for Treasurer of Orange County, California. A certified public accountant and financial planner. He warned that their borrowing and spending was putting them on the road to ruin.

Sharyl: And at the time did people call you chicken little?

Moorlach: Yeah, Even in the newspapers. So “Sky Did Not Fall” is what the headline said. So they were inferring that I was Chicken Little. ‘Everything is fine’.

Sharyl: Everything wasn’t fine. Moorlach was right. Within weeks of his prediction, Orange County declared bankruptcy.

CBS News: The largest municipality in U.S. history to file for bankruptcy.

Sharyl: And then when it happened, Orange County actually brought you in and made you treasurer?

Moorlach: That’s right. Then I helped with the administration to get out of chapter nine bankruptcy protection. Took us about 18 months and we had to, you know, start fresh as a county that had lost a 1.7 billion. It was the largest bankruptcy in us history at the time.

Sharyl: Today, Moorlach is a California state senator whose license tag famously reads: “Sky Fell.” And now he sees another recession on the horizon.

Sharyl: What is your prediction for the near-term future of California?

Moorlach: It’s bumpy. We can talk about how wonderful things are and they are, you know, on the outside. But underneath, the house is being held together by termites holding hands together and it’s just gonna be real awful because when it, when the ship hits the sand, it’s not going to be pretty

Sharyl: If there’s something most everyone seems to agree on it has to be California’s best and most enduring feature.

Lansner: Well, it’s always embarrassing to say, but the first thing is the weather and most of the states.

Sharyl: It’s not embarrassing— it’s beautiful

Lansner: But it sounds embarrassing because it’s not sort of very, you know, cerebral, right? We want to talk about all those great things. But the weather drives a of things.

Moorlach: This is an amazing place California is its coastline, Yosemite, the redwoods in the north, that deserts. This place is amazing.

Sharyl: In the end for a lot of people life in California is a conscious trade off.

Angelica Lego: Well, you have to pay for living in a sunshine state. There is certain benefits to living here in California that you don’t find anywhere else in the country and to reap those benefits, there’s a price associated with it..

In 2017, Orange County, California finally paid off the last of its bankruptcy debt from 1994.

Revisiting a Derivatives Debacle 20 Years Later – What Have We Learned?

Note: Special IIN contributor Kristina Zucchi reported and wrote this article.

On December 6, 1994, Orange County filed bankruptcy. The world soon learned that a mild-mannered treasurer, the late Robert Citron, had blown a $1.7 billion hole in the county’s $7.6 billion general Investment Pool via a highly levered wrong-way bet on interest rates. To this day, in many corners of the institutional world, derivatives is a dirty word. And while this story has several captivating layers and mystifying subplots, it is, ultimately, a tragedy, if for no other reason than it never should have happened. Even sadder: since the episode became known, at least every few years, someone else has stood on the shoulders of failed genius and stumbled into the same sort of disaster. Galling, havoc-producing failures of oversight keep coming to light.

So what were the most important lessons of the Orange County debacle – and has the financial industry learned them? In preparing a special IIN report, we’ve spoken to some of the individuals involved, including former Merrill Lynch salesman Michael Stamenson.

The Root Causes: Inappropriate oversight; an inadequate supporting cast and substandard, informal processes all contributed to a fiduciary failure for the ages.

The Aftermath: Derivatives concocted for the sake of hedging – and risk taking – proliferated and continue to be controversial. Subprime-laced securitizations and synthetic vehicles facilitating titanic bets against them were at the heart of the global financial crisis. But the industry presses on and for every skeptical institutional investor there are plenty of others who are more than comfortable using derivatives in a variety of ways. To read a recent IIN case study about an Ontario pension plan that extracts all of its equity exposure via derivatives, click HERE.<https://www.investorintelligencenetwork.com/research/case-studies/derivative-design-exploring-hoopps-portfolio-overhaul>

Community Take: Reexamining the story of Orange County is worthwhile, says an IIN founding member. But it’s the L word, not the D word, we most need to contemplate. “What’s still most relevant today,” the member says, “is the inability to adequately comprehend and quantify leverage. Leverage takes many forms and is not always/usually/ever properly assessed. Even when recognized, it can be hard to assess the downside risk.” Adds another asset owner, “it’s timely to reinforce the Enterprise Risk Management and Governance perspectives.”

Failure #1: Inappropriate Oversight

Running the pool as elected treasurer, Citron, throughout the early 1990s, acted on his firmly held view that interest rates were heading down. He put his view to work via structured notes created by investment bankers at Merrill Lynch and other firms working with GSE issuers. Citron’s call proved prescient and his moves helped the Investment Pool notch above-market returns. County leaders, enthralled by the strong performance, gave the pool more and more money. Its assets grew from $3 billion in 1991 to more than $7 billion in 1994.

Citron had been in office for more than two decades. His investment style had been honed over many years investing in straightforward government and corporate agencies with some leverage via reverse repurchase agreements (securities allowed by way of a state law Citron helped draft in 1979). During the final few years of his tenure, he began using custom-built derivative securities, such as inverse floaters, notes that derived value from the direction of interest rates and which were structured by issuers specifically to meet his objective.

Citron, recalls Stamenson, generally used plain vanilla, not-at-all controversial derivatives i.e. government agency issues with 3-5 year maturities and fixed interest rates for 90 days that then floated to a LIBOR spread. “It was nothing the banks weren’t all doing at that time,” Stamenson says.

Citron’s overseers, the County Supervisors, were, by all accounts, ill prepared to understand the strategy and not well-educated about investments in general. According to Stamenson, Citron was not a “people person.” He was smart, intense and self-assured but he spoke with a stutter that seemed to unnerve not only himself but also the Supervisors whenever face-to-face meetings were held. But, says Stamenson, now 74, Citron was willing to discuss the portfolio with anyone who had a legitimate question. No one asked. Call it a lack of knowledge – or blissful ignorance. Consistent outsized returns proved seductive. The now infamous quote from Thomas F. Riley, former Chairman of the Board of Supervisors, sums it up: “I don’t know how the hell he does it, but he makes us all look good.”

Even when questions arose about the strategy – John Moorlach, Republican challenger for County Treasurer, gave strong vocal warnings of impending disaster during his failed campaign, as did others (who did not have a perceived political axe) – but the Supervisors failed to heed them. Moorlach: “Interest alone was projected to be 35% of revenues … THAT should have been a red flag!”

What should have been a red light instead became a green light, explains Moorlach. And it wasn’t just the OC Supervisors. The OC Budget Director and counsel and auditors all failed to notice the oversized, and vulnerably built wagon to which the pool was hitched.

Citron did try to lower the profile of his elevated returns by skimming interest earnings from one County account to another (actions for which he was later indicted) but beyond that he did not try to overtly hide his strategy. Citron continued to believe in, and bet on, his convictions. But he compounded matters by issuing pension obligation bonds to put more money into the floundering pool. By this time, his annual verbal “testimony” to the Board had given way to written reports (presumably when his stutter became too much to bear). These reports, however, provided all the details of his strategy. Some Board members were made to feel insecure by others about not understanding the complexity.

Between February 1994, when the Fed first began to tighten, and early December, the six-month Libor went from 3.6% to 6.8%. Losses mounted. Wall Street demanded more collateral. Citron didn’t have it. The market smelled blood and turned against him. The portfolio had to be triaged and liquidated. In all, some $1.7 billion was lost. The County filed for bankruptcy.

Lesson: All levels of an investment organization, from the investment managers to the risk personnel, should crave the most timely, accurate information available, at all times. Everyone along the chain of command should err on the side of unbridled curiosity, so as to strive to understand, and keep in check, unknown or inadvertent sources of risk. Proper training and education for all fiduciaries should be a top priority. Ample doses of common sense skepticism should be welcomed.

Failure #2: Inadequate Risk Guidelines and Systems

According to a former Wall Street trader who reviewed the portfolio at the time it was going up in flames, Citron had amassed upwards of 7x leverage, not taking into account the internal leverage inherent in inverse floaters.

“It was a breathtaking amount of leverage,” says Tanya Beder, a derivatives expert and CEO of SBCC Group, a risk advisory firm. “It was akin to an unregulated hedge fund. But this was gambling with the money from taxpayers.”

Citron appeared to work within the somewhat opaque guidelines set forth in California laws (Section 53601 governing allowable investment securities). These were laws Citron knew well. He helped create some of them. There was never any evidence that Citron failed to follow them to the letter. But the laws, as written, were antiquated because they failed to encapsulate the newer, more “exotic” securities such as inverse floaters. Although these inverse floaters on paper appeared to stay within the guidelines, in reality they had imbedded characteristics creating much higher risk, characteristics such as longer duration exposure. According to Moorlach, Citron’s actual duration was closer to four years. The unintended duration exposures created by using inverse floaters may not have been known, even by Citron — because the systems used by its custodian were not equipped to handle these types of securities (marking them at par rather than at market), resulting in incorrect valuations. In conjunction with inadequate internal systems, subpar custodial systems allowed this portfolio to spin out of control unchecked. And despite the higher duration, “it was the leverage [that] imploded the portfolio, not the derivatives,” recalls Moorlach.

Lesson: Investment policy statements and risk guidelines need to be written and revisited regularly to ensure they are capturing the current environment and not in and of themselves causing unintended consequences. It is incumbent for all asset stewards to be in lockstep with regard to agreed appropriate risk controls. Risk guidelines need to be thought through so they are effective and up to date for all types of securities, including financial engineered services like inverse floaters or CDOs that may slip through a crack in codified guidelines. Systems, both internal and external, are the lifeblood of risk control. Without appropriate, relevant, accurate, comprehensible information, asset stewards, whether investment trustees or staff, are ill-equipped to fully evaluate portfolios.

Failure #3: Lack of Support, Planning

Lost in the recriminations following the bankruptcy were multiple attempts by Merrill Lynch to rescue this failing portfolio during the months prior to the bankruptcy filing. All of these overtures, says Stamenson, were rebuffed by Citron who had a deep mistrust of Wall Street. It’s an ironic twist in a narrative generally presented as a simple layman being led down a perilous path by greedy bankers.

Citron’s belief that Merrill was looking to get one over on him, together with his conviction that interest rates would come down again in the near term, led him to reject repeated offers to unwind when there was still a chance to minimize damage. Citron was operating with one assistant, but as Treasurer he was, essentially, a solo act. In a team environment — say, at a hedge fund — he may have been challenged, industry members say.

By the time margin calls came, the Supervisors were blindsided by the magnitude of the problem. The County was in turmoil and further handicapped by a law requiring notice (of up to 24 hours) prior to the holding of special meetings. It was a delay which was akin to a lifetime in the derivatives market. By that time, the County had nowhere to turn. Some of the people that might have been in a position to help clean up the mess were paralyzed by potential conflicts. A local judge might have issued a temporary order buying the County some time, but tricky ramifications held them back; an outside advisor, LeBoeuf Lamb, resigned over conflicts resulting from their involvement in some controversial OC bond issues. Internal counsel was unwilling or unable to step in. Wall Street sent representatives to institute a bailout plan, which included an offer from Merrill Lynch to provide a $2 billion overnight repurchase agreement to provide the much needed cash. But with no leader (Citron resigned), no adequate counsel to act as fiduciary and no temporary restraining order, the County filed Chapter 9.

Lesson: No man is an island. An investment organization needs a team of impartial, well-educated contributors. Support layers, advisers, yes even consultants, are integral components to ensure that when calamity strikes, the organization will not be left scurrying in the dark. Contingency planning is paramount.

The Aftermath

The ramifications from the episode resonated with municipalities everywhere and there were lessons that were not lost or left unlearned. After all was said and done, investment policy statements were required by the California state statutes with mandatory reviews at least annually. The Government Accounting Standards Board (GASB) issued Statement 31 requiring all municipal governments report their cash portfolios at market value, a standard Moorlach joking calls the “Moorlach Standard”. Gone were the days of playing duration and focusing on yield. Immediately after the OC implosion, municipal treasurers all shorted up and according to a source at one rating agency, the average weighted maturity of muni portfolios was as low as 20 days. Investment professionals also took to heart the need to upgrade the financial talent and surrounded themselves with highly trained investment professionals, employing internal or external credit analysts.

The takeaways from this debacle are numerous. One thing remains clear: financially engineered instruments will continue to proliferate. This raises the inevitable possibility that risk metrics and systems will lag and fail to properly measure them as overseers play catch up. Restrictive regulations put in place fail to fully deter overzealous yet in many ways banal collective behavior for if the security issuers have shown anything it is that they are adept at innovating ways to circumvent restrictions through the creation of new instruments, or new nomenclature. And so it goes. Keep the old saw handy — if it looks too good to be true, it probably is.

Postscript

Bob Citron died January 16, 2013. After the bankruptcy was filed he was found guilty on six felony counts. He was sentenced to work in the county jail but never spent a night behind bars. His probation ended in 2002. Citron’s assistant Matthew Raabe was similarly convicted and served over a month behind bars before his verdict was overturned. Several County Supervisors had their indictments later dismissed. It was ruled by an appeals court that “failing to do their jobs wasn’t a crime.”

John Moorlach was elected as treasurer after the resignation of Citron and served in that position till 2006. He continues to be involved in Orange County government, currently as Supervisor of the 2nd district, a post he will be retiring from at the end of 2014.

Orange County sued Merrill Lynch for $2 billion. The case was settled on June 3, 1998 with Merrill paying just over $400 million.

Michael Stamenson is retired and living in the Western U.S. He and other executives at Merrill Lynch were not personally sanctioned by the SEC for their involvement with the OC bankruptcy. The SEC concluded that the “failings with respect to Orange County were a firmwide pattern of negligence — from the trading desk and sales personnel to the investment banking side — that constituted unintentional fraud … we made a determination that this case was about a collective failure at Merrill Lynch,” former SEC Pacific Regional Director Elaine Cacheris told media outlets. The only penalty Merrill paid to the SEC was for $2 million with respect to charges that the firm mislead investors who purchased the muni bonds without disclosing the County’s financial risks. All told the County reaped almost $800 million from its suits against the investment banks.

Orange County emerged from bankruptcy 18 months after its filing. The participants in the pool recovered up to 97% of their investments by February of 2000. And repayment of the long term bonds it issued to cover short term debt are slated to be paid off in 2016. In the long run, Orange County, no longer the largest municipal bankruptcy, emerged relatively unscathed.

A California state ban on municipalities investing in inverse floaters remains to this day.

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MOORLACH UPDATE — Masking Fiscal Problems — December 10, 2018

The audited financial statements for California’s municipalities should be publicly released soon, if not already, for the fiscal year ended June 30, 2018.

This year’s Comprehensive Annual Financial Reports (CAFRs) will now include the unfunded liability for retiree medical benefits. This may take the independent Certified Public Accounting firms performing the audits a little more time as they acquire the actuarial documentation to support the amounts to be reported on the balance sheets.

Aren’t you glad you have a CPA as your State Senator? The two CAFRs I’m most anxious to see are the ones for LAUSD and the State of California (which is usually released in late March).

Why LAUSD? Because it has the largest unrestricted net deficit of any California school district, at $10.9 billion (see MOORLACH UPDATE — Los Angeles County School Districts — December 2, 2018). And reporting the retiree medical unfunded liability on the balance sheet means it will increase LAUSD’s deficit by another $15 billion (see https://reason.org/commentary/los-angeles-unified-school-district-unfunded-retiree-health-benefit-liability-nears-15-billion/).

R Street understands the magnitude of this serious fiscal dilemma at all levels below that of the state of California and provides its perspectives on the upcoming budget forecast in the piece below (also see MOORLACH UPDATE — Optimistic Budget or Not? — November 18, 2018).

A recent Patch piece is referred to (see MOORLACH UPDATE — Public Schools Financial Crisis — November 3, 2018). It mentions California’s Financial Crisis & Management Assistance Team (FCMAT). Our research is indicating those school districts that utilize FCMAT for emergency loans usually request amounts that are at a minimum two times, with most multiple times more, the size of their unrestricted net deficits.

Oakland Unified’s unrestricted net deficit in 2003 was $48.7 million when it was loaned $100 million. South Monterey County Joint Union High’s unrestricted net deficit was less than $2 million when it borrowed $13 million.

It looks like LAUSD will have an unrestricted net deficit of $25 billion! If it comes to the state for a loan from FCMAT, where will Sacramento find $50 billion to lend it?

Of course, previous emergency FCMAT loans were made when CAFRs did not include pension and retiree medical unfunded liabilities. So, maybe the loan amount will be lower. But, even if the loan is for the 2017 net unrestricted deficit of $10.9 billion, the amount will be staggering. It makes me wonder, should the teachers union for LAUSD really be contemplating a strike when its district is on the ropes? And, will LAUSD then suck all the air out of California’s projected surplus?

Surplus masks deep fiscal problems, especially in school districts

Steve-Greenhut-400x400.jpg

Steven Greenhut

Western Region Director, State Affairs

https://www.rstreet.org/2018/12/10/surplus-masks-deep-fiscal-problems-especially-in-school-districts/

As Gov. Jerry Brown heads into the sunset, he leaves California’s general-fund budget in remarkably sound shape, according to an analysis last month from the nonpartisan Legislative Analyst’s Office. “It is difficult to overstate how good the budget’s condition is today,” the LAO reported, pointing to a $14.5 billion reserve by the end of next year and touting an additional $14.8 billion in funds that can be used for myriad budget commitments in the new session. “By historical standards, this surplus is extraordinary,” it added. Such good news is indeed unusual and extraordinary.

The governor’s critics have rightly picked some nits with this good-news story. If there’s so much available cash, they ask, why did the governor last year increase gasoline taxes and vehicle-license fees? Brown led the charge for a 2012 proposition (Prop. 30) that boosted sales and income taxes, but economic growth had pushed budget surpluses above the amounts collected by the new taxes. Yet tax increases remain state lawmakers’ first-reach answer to every problem – with little effort expended on stretching the dollars the state already receives.

But there’s a bigger concern beyond Democratic lawmakers’ budgeting priorities and reliance on tax hikes. The real question: Should Californians really be so optimistic about the fiscal health of the state government? We’re all happy to see the surplus, but the answer is no — largely because it’s a mirage. The budget surplus doesn’t take into account the size of California’s unfunded pension and medical liabilities for public employees. Those debts are accounted for separately and that picture is decidedly less optimistic. The problem keeps getting worse because lawmakers continue to ignore it, preferring to instead bask in the more superficial good news.

“We literally owe trillions that isn’t being discussed,” explained Todd Royal, in a recent column in Fox and Hounds Daily. “Just the estimated payments on public employee pensions in California will increase from $31 billion in today’s dollars to $59 billion in 2024; and this number is based on non-recessionary conditions or a major correction in the stock market. And California immediately needs $800 billion to over $1 trillion worth of infrastructure repairs, upgrades and new construction.” He pointed to estimates from the California Policy Center last year pegging the total state and local debt for bonds, pensions and other post-employment benefits at $1.3 trillion, which is more than half of California’s Gross State Product.

For even more sobering news, state Sen. John Moorlach, the Costa Mesa Republican best known for predicting Orange County’s 1994 bankruptcy, released a study documenting the dire financial conditions facing California’s school districts. “About two-thirds of California’s 944 public school districts run negative balance sheets,” he explained in an October report. That amounts to 85 percent of California’s school districts. “This simple metric shows the most distressed districts could soon reach a tipping point into insolvency and receivership.” That compares to the approximately two-thirds of California cities and 95 percent of counties with negative balance sheets. Several school districts, including Los Angeles Unified, Fresno Unified, San Diego Unified and Santa Ana Unified are in “severe distress,” according to the senator’s analysis.

As a reporter for Patch noted, “Moorlach’s report focused on the Unrestricted Net Position (UNP), an accounting function contained on a school district’s balance sheet portraying what is essentially the net worth of its general fund – the account from which it pays salaries, benefits, administrative costs, maintenance of school buildings and other general operating expenses such as insurance, consulting services and travel.” Some critics dismissed that accounting measure by noting that it has little impact on a district’s day-to-day operations, but Moorlach argued that this is an important measure for determining the degree to which unfunded liabilities are crowding out public services.

Under Proposition 98, the state promises a particular amount of funding to K-14 school districts based on a formula. The Legislative Analyst’s Office also analyzed school budgets and was somewhat less optimistic than it was regarding the general-fund budget. It predicted a 3.1 percent increase in funding in the coming year and offered this caution: “The volatility of the minimum guarantee, the possibility of a recession sometime after 2019 20, and the lack of funding in the state school reserve are all reasons the Legislature might wish to budget cautiously in the upcoming year.”

Caution is a key word for the incoming Legislature, which will be more strongly Democratic than the outgoing Legislature after the blue wave crashed in California during the recent midterm elections. Democrats will hold solid supermajorities in the Senate and Assembly and are likely to face renewed pressure for increased spending, higher salaries and benefits for public employees, and on new programs that will involve the hiring of many more state workers.

Whenever the state has a budget surplus, powerful public-employee unions seek higher pay and benefits for their members. Yet the surplus, however welcome and impressive, pales in comparison to the off-budget liabilities and debts. The fiscal good news is a relief, but must be viewed in context. If state lawmakers are unwilling to address the unfunded liabilities, they should at least do no harm – and not use the surpluses as an excuse to go on a spending spree that makes the state’s long-term financial problems even more difficult to solve.

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MOORLACH UPDATE — Reflection on Achievements — December 9, 2018

When I was the Orange County Treasurer-Tax Collector and a County Supervisor, I would notify those receiving my UPDATE to be sure to pay their property taxes on time. Tomorrow, December 10th, is the deadline for the first installment. Paying it after this date results in a 10 percent penalty. If you have not paid your property tax bill, please get your payment postmarked today or Monday (if you wish to pay online, go to http://tax.o, cgov.com/tcweb/search_page.asp).

Now, on to some fun news from this very busy year. It’s about a few attaboys.

As you may recall, in 2017–I was recognized by the Apartment Association of Orange County as their Legislator of the Year (see MOORLACH UPDATE — Attaboy — January 22, 2018).

This year, on September 22nd, the California Psychiatric Association presented me with their 2018 Award of Appreciation. The beautiful plaque reads: “Who Stands out as a Mental Health Champion in the California Legislature and is Held in High Esteem by the Members of the California Psychiatric Association who Fully Appreciate the Significance of his Leadership.”

One of the many accomplishments was SB 1363 (see MOORLACH UPDATE — AB 448 and SB 1363 — September 12, 2018). Another was SB 1206, which resulted in this November’s most successful ballot measure, Proposition 2 (see MOORLACH UPDATE — Joint Author Details — July 7, 2018).

On October 20th, the Alliance of California Judges recognized me as the Legislator of the Year for 2018. This was for my efforts on SB 656 (see MOORLACH UPDATE — SB 656, 905, 174 and AB 3129 — September 30, 2018).

And, on November 28th, at the 8th Annual “Turning Red Tape Into Red Carpet” I was presented with the 2018 Leadership in Public Service Award by the Orange County Business Council. OCBC recognized our work on AB 448 (see MOORLACH UPDATE — AB 448 and SB 1363 — September 12, 2018). Their press release is provided by MarketWatch and the pertinent segment is the piece below.

One of my fellow Leadership in Public Service Award recipients, Orange County Supervisor Andrew Do, provides an editorial submission to the OC Register on what has been accomplished this year on the homelessness front in the second piece below. As 2018 comes to a close, it is good to reflect back on what has been accomplished in the OC by the collaboration of many for the benefit of the least, the last, and the lost.

OCBC Honors Government Agencies Cutting Red Tape In 8th Annual “Turning Red Tape Into Red Carpet” Awards

https://www.marketwatch.com/press-release/ocbc-honors-government-agencies-cutting-red-tape-in-8th-annual-turning-red-tape-into-red-carpet-awards-2018-12-03/print

Local Leaders Tackling Homelessness: The Honorable Andrew Do, Orange County Supervisor 1 [st] District; The Honorable Jennifer Fitzgerald, Fullerton City Council Member; Dan Young, Camino Enterprises

Chairman of the Orange County Board of Supervisors Andrew Do, Fullerton Councilmember Jennifer Fitzgerald (and Chairman of the Board of Directors of Association of California Cities—Orange County) and Dan Young played crucial roles in developing solutions to Orange County’s pervasive homelessness epidemic. Supervisor Do and Mr. Young spearheaded the purchasing of a 44,500 square foot building that will be used to provide supportive housing. Councilmember Fitzgerald was instrumental in advocating for a ACC-OC sponsored legislation to establish a public agency/joint powers housing trust, AB 448–Orange County Housing Finance Trust—to accept public and private funding for projects to end homelessness.

State Leaders Tackling Homelessness: The Honorable Tom Daly, Assemblymember 69 [th] District; The Honorable Sharon Quirk-Silva, Assemblymember 65 [th] District; The Honorable John Moorlach, Assemblymember 37 [th] District; The Honorable Patricia Bates: Assemblymember 36 [th] District

Assemblymembers Tom Daly and Sharon Quirk-Silva authored AB 448, a landmark bill that established the Orange County Housing Finance Trust to receive a mix of public and private funding to develop 2,700 units of permanent supportive housing that fit into the County’s comprehensive system of wrap-around services for homelessness prevention. Senators John Moorlach and Pat Bates vigorously pushed the legislation through the Senate, demonstrating unifying bipartisan support. AB 448 passed both chambers without a single opposition vote, a testament to AB 448’s common-sense solutions and unifying properties.

OPINION

In 2018, Orange County achieved meaningful progress on homelessness

By ANDREW DO

https://www.ocregister.com/2018/12/08/in-2018-orange-county-achieved-meaningful-progress-on-homelessness/

It has been a year of momentous change for Orange County.

We started the year transitioning more than 1,000 people out of two major homeless encampments. Now, we end the year with plans to build 2,700 units of supportive housing for the neediest in our communities and expand the number of emergency shelters and support services. In 2018, we took significant steps to build out a system of integrated services that are designed to help people transition permanently out of homelessness.

During this season of charity, it is appropriate that we reflect on the lessons we have learned, with the hope that we can build on those lessons to be even more effective in dealing with the national crisis of homelessness.

After almost four years of leading these efforts in the county, I know the most meaningful shift for Orange County has been our approach to combating homelessness.

When the year began, many homeless advocates questioned whether enough resources were reaching those in need. For far too long Orange County had been slow, reactive and far too restrained in our response to the problem. Shortly after taking over as Chairman of the Board of Supervisors, I acknowledged the county’s failures and promised a new direction.

Now, we are working together across county departments, and with cities, breaking down bureaucratic silos that inhibit access to service. We are also welcoming support from local, state, federal, and non-profit partners.

Our new direction is backed by a substantial commitment of resources across a burgeoning system of care. Thus far, in 2018, Orange County has allocated more than $189 million toward homeless-related programs. In March, the Board of Supervisors approved $70.5 million in state Mental Health Services Act funds to house homeless people living with mental illness in supportive housing programs. It was “the single largest appropriation ever committed by the County to fight homelessness” and propelled 259 new mental health and special needs housing units currently in progress.

To meet our immediate shelter needs, we supplemented the county’s Courtyard homeless shelter in Santa Ana by extending the emergency shelters at two National Guard Armories in Santa Ana and Fullerton and adding capacity at SAFEPlace women’s shelter, American Family Housing shelter for couples, and Bridges at Kraemer Place shelter.

In addition to emergency shelter programs, we have invested $26 million to build the first county-owned mental health facility. The 44,556-square-foot facility will allow individuals to get help in one place — accessing emergency mental health crisis stabilization, drug abuse treatment, and residential psychiatric care. We also approved $2.4 million for recovery residence service to provide safe and drug-free housing for those seeking to get clean.

To create more housing in the short term, we are piloting new projects to encourage private landlords to make units available to rent to homeless individuals by providing them with financial protection. The county contributed $250,000 in seed funding to support the Orange County United Way’s Landlord Incentive program. Over the next year, the pilot project will provide as many as 55 housing placements by removing financial barriers, such as providing application expense reimbursement, security deposits, damage claims assistance, etc., which inhibit access to stable housing.

Orange County has also recognized the importance of linking people to supportive services. More than $5.4 million has been committed toward a multi-service center. Operated by the Mental Health Association of Orange County, the program connects homeless mentally ill adults with behavioral health assessment, counseling, hygiene kits, and provides transportation to reach necessary behavioral health and medical services.

Just as important as coordinating services, our community is embracing cooperation among local, state and federal governments to create more permanent supportive housing as part of our long-term solution. The County of Orange and the Association of California Cities-Orange County co-sponsored Assembly Bill 448, which enabled the creation of the Orange County Housing Finance Trust. Orange County Senators John Moorlach and Pat Bates with Assemblymembers Sharon Quirk-Silva and Tom Daly fast tracked the bill, which will provide hundreds of millions of dollars in public and private funding to develop affordable and supportive housing for both working families and those who are homeless. We are also working with the business community and philanthropic leaders to supplement public funds with private donations.

Cities have contributed, too. The Santa Ana City Council recently expedited the building of a new temporary 200-bed homeless shelter, called the Link Shelter. The cities of Anaheim and Orange, along with others are working on shelter and mental health facilities, which should come on line in the near future.

We haven’t solved the problem. There’s still more work to be done. Thousands of individuals lack a safe place to sleep every night, and tens of thousands more are a paycheck away from losing their homes. But for the first time in decades, Orange County has developed a responsible path forward and comprehensive approach to combating this national problem.

Andrew Do is Chairman of the Orange County Board of Supervisors.

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MOORLACH UPDATE — Motor Voter Madness — December 6, 2018

Last year, during the winter break, I flew up to Sacramento and had a private meeting with Secretary of State Alex Padilla in his office. I shared with him that I had been receiving constituent concerns about the new motor voter program, which would be launched in the following spring. He calmly and graciously assured me all was well and there was nothing to worry about. I took him at his word, despite mounting concerns about the process.

In September, the Department of Finance conducted a performance audit which disclosed that there was plenty to worry about, as the Department of Motor Vehicles was guilty of numerous and significant human errors (see https://www.sacbee.com/news/politics-government/capitol-alert/article219739930.html). Apparently, 1,500 individuals who were not U.S. citizens were registered to vote!

I immediately wrote to the Secretary of State, reminding him of our meeting and calmly and graciously requested that he answer a few questions. The Sacramento Bee obtained the exchange of correspondences and includes it in the piece below. I have my letter and Mr. Padilla’s response posted on my website at https://moorlach.cssrc.us/content/voter-integrity.

The resulting piece can also be found in The Modesto Bee, the Merced-Sun Star, and The Fresno Bee.

After an amazing and historical election cycle in Orange County last month, it should be cause for us to review and analyze what occurred. Allowing non-citizens to vote is egregious and could have made a difference in a few very closely contested city council races. Consequently, I am looking at legislation to more fully assure voter integrity, and some of the ideas are referred to in the piece. I have been working with Orange County’s renowned Registrar of Voters, Neal Kelley, on suggested language for a more specific and targeted bill.

CALIFORNIA

Sacramento Bee files complaint over Motor Voter records

BY BRYAN ANDERSON

banderson
www.modbee.com/news/state/california/article222622185.html
https://www.mercedsunstar.com/news/state/california/article222622185.html
https://www.fresnobee.com/news/state/california/article222622185.html

California Secretary of State Alex Padilla is refusing to turn over public documents that could shed light on problems with the state’s Motor Voter program, which launched earlier this year to automatically register people to vote when they visit the Department of Motor Vehicles.

Motor Voter has come under fire after thousands of Californians were improperly registered to vote, and it remains unclear whether any non-citizens voted this year.

The Sacramento Bee last month submitted a records request for written communications to or from Padilla and his chief of staff, Bill Mabie, regarding a batch of approximately 1,500 registration errors.

Padilla’s office released 268 pages in response, though half the pages were newsletters he received from news organizations that referred to the registration errors. His office said it did not have to disclose additional material. “Some attorney-client privileged communications and other documents reflecting the deliberative process and official information privileges were not included in the page count, along with records that reflect the candid evaluations and exchange of ideas that assist the decision-makers in making their final policy and other executive decisions.”

An attorney working on behalf of The Sacramento Bee disagrees with Padilla’s assertions.

“I don’t think it’s a legitimate response to a (Public Records Act) request,” said Karl Olson, a partner in Cannata, O’Toole, Fickes & Olson LLP. “They’re just kind of lumping together any possible exemption that they can think of, including many that it would seem obvious could not possibly apply. … Unfortunately, it’s not that unusual that you get this kind of a … response.”

Olson on Thursday sent a letter to Padilla demanding the release of additional records.

“Seeing how the Secretary of State did or didn’t handle registration errors is a matter of intense public interest,” he wrote. “The interest in disclosure of records relating to this clearly outweighs any interest in non-disclosure.”

Padilla has declined to be interviewed. “It is our policy not to comment on pending investigations,” he said in a statement.

Padilla declined to explain what investigation he was referring to. The Department of Finance is now auditing the DMV. The two agencies said they are not aware of any other ongoing investigations beyond the audit.

Emelyn Rodriguez, executive director of Californians Aware and an attorney specializing First Amendment cases, said there appears to be a lack of transparency.

“What’s kind of surprising is they’re not willing at all to provide any details or speak to this serious issue and allegation of irregularity in the voting,” Rodriguez said. “There should be some response there, and that’s troubling, quite frankly. He’s a public official. He’s accountable to the public. There should be some statement about what’s being done.”

Assemblyman Jim Patterson, R-Fresno, has been a vocal critic of the DMV. He fell one vote shy in August on his request to have state Auditor Elaine Howle investigate the DMV. Patterson plans to renew calls for an audit in January and questioned Padilla’s response to The Bee’s inquiry.

“It is suspicious,” Patterson said. “If there’s nothing to see here, then open up the file, show the light. Unfortunately my experience in government has been that if there is something to see, oftentimes there’s all kinds of reasons why only this information will be allowed and that information is kept secret. When it comes to voting, there should be no secrets at the Secretary of State’s Office. Period.”

Among the 268 pages of material is a Nov. 9 letter Padilla sent to state Sen. John Moorlach, R-Costa Mesa. Moorlach had demanded answers in September, soon after 23,000 erroneous voter registrations were disclosed.

“The DMV informed us that certain individuals that declined to respond or answer no to any one of the five eligibility questions were incorrectly registered through no fault of their own,” Padilla wrote to Moorlach. “We have notified county election officials to cancel these records.”

The five eligibility questions include one asking people to confirm they are “a U.S. citizen and a resident of California and at least 18 years old.” Padilla said in his letter the inaccurate registrations do not constitute voter fraud because they were the result of errors made by the DMV and California Department of Technology. He told Moorlach his office “continues to to explore various strategies that can help voters identify and report irregularities.”

Moorlach is not pleased with the response and questioned the integrity of the vote in the last election.

“There’s a shadow over the results that make a lot of constituents wonder what is going on, and I don’t have any evidence other than I have to assume that the Democrats did a great job of getting ballots to the Registrar of Voters,” Moorlach said. “All I’m concerned about is a fair fight. I don’t want to go to a knife fight and end up looking at machine guns.”

He’s now considering introducing bills that would place stringent voting requirements that would likely reduce turnout. His proposals are unlikely to see the light of day in the Capitol, given historic Democratic advantages. Among the ideas Moorlach is floating is eliminating Motor Voter completely, clearing the rolls of any person who hasn’t voted in the last four years and implementing strict ID requirements.

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MOORLACH UPDATE — Legislative Analytics for 2017-18 — December 5, 2018

I’m more of a policy person, so you’ll enjoy the second and third pieces below. But, politics is also a component of this life in the state legislature. And, the first piece provides one of the two upcoming big political events on the immediate horizon. The California Republican Party’s Convention is in February and will be critical, as a new Chair and Vice Chair will be elected by the delegates.

The upcoming Senate vacancy, due to the election of Sen. Ted Gaines to the State Board of Equalization, will mean a special election in March, similar to the one that brought me to Sacramento in March 2015. When asked about my concerns, I shared them and they even became a portion of the title in “The Capitol Alert” e-mail by The Sacramento Bee, the top portion of which is the first piece below.

Speaking of the possibility of having too many candidates in an effort to succeed Sen. Gaines, Techwire has a piece, the second below, on one of the potential candidates. This year I successfully jockeyed a resolution, ACR 215 on artificial intelligence, for Assemblyman Kevin Kiley on the Senate Floor.

The third piece below, from Capitol Weekly, provides an analytical recap of bills by someone who does a great job of keeping track. As a reminder, I served on the Senate Budget, Governance & Finance and Insurance Committees.

BONUS: You’re invited to visit our District Office for our annual Christmas Open House. The event will be held tomorrow, December 6th, from 4 to 6 p.m. My entire staff will be there to give you an education on what we have been doing and plan on accomplishing in the new year. Dress is Christmas comfortable. (Wearing a Reyn Spooner Christmas shirt will get you an extra cookie.)

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Capitol Alert

The go-to source for news on California policy and politics

CAPITOL ALERT

Will California see tax increases? + ‘A real crazy mess’ filling Ted Gaines’ seat

BY BRYAN ANDERSON

banderson
https://www.sacbee.com/news/politics-government/capitol-alert/article222589505.html

Read my lips: No. New. Taxes. Well, maybe not exactly. After speaking with top Democrats, things are a bit more complicated.

CAN WE EXPECT MORE TAXES?

With supermajorities in the Legislature, it will be easier — at least in theory — for Democrats to raise taxes and approve constitutional amendments. Assembly Speaker Anthony Rendon was adamant that tax increases are not on the horizon.

“There’s no plans on the books right now for tax increases,” Rendon said. “There’s no proposals for raising fees, either.”

(Rendon spoke before eight Assembly Democrats introduced Assembly Bill 18 to establish a tax on sales of semi-automatic firearms.)

Senate President Pro Tem Toni Atkins seemed more open to the possibility, saying that “it’s always a matter of discussion.” She expects several bills requiring two-thirds support will be brought to a vote.

“You’re going to see a number of pieces of legislation that are going to be put forward that take a two-thirds vote,” Atkins said. “It’s up for discussion. We will see how our colleagues decide.”

WHO WILL REPLACE TED GAINES?

Sen. Ted Gaines, R-El Dorado Hills, will be leaving his post to join the state’s Board of Equalization. Candidates have started to emerge publicly. Beth Gaines, Ted Gaines’ wife and a former assemblywoman, is expected to run. She has already received thousands of dollars for a 2020 election campaign. Sen. Gaines all but confirmed his wife’s intention to run, saying, “She is very actively engaged in the Senate campaign.” He said he’d happily support his wife’s candidacy.

Assemblymen Kevin Kiley, R-Rocklin, and Brian Dahle, R-Bieber are running, as is Rex Hime, President and CEO of the California Business Properties Association. Senate Republican Leader Pat Bates said the party will be “working very hard to get a great candidate.”

The district covers a large portion of northern California, stretching from the Oregon border to the Lake Tahoe area. It is a heavily red seat Republicans are expected to win.

“I’m in the Senate,” said Sen. John Moorlach, R-Costa Mesa, “so I’ve got to worry about who replaces Gaines. That’s gonna be a real crazy mess.”

Kiley: AI, Privacy, Cybersecurity

Among Possible 2019 Legislative

Tech Priorities

Assemblyman Kevin Kiley says it’s likely the Legislature will scrutinize law and policy around artificial intelligence in 2019, introduce new legislation on privacy, and monitor state cybersecurity.

BY THEO DOUGLAS

https://www.techwire.net/news/ai-privacy-cybersecurity-among-likely-2019-legislative-priorities.html

Having handily prevailed in his first-ever re-election, Assemblyman Kevin Kiley, a member of the California Legislative Technology and Innovation Caucus, told Techwire he’s hoping to build on the success of one technology measure in particular which sailed through the Legislature last summer.

Kiley, first elected in 2016, outpolled Democratic challenger Jacalyn “Jackie” Smith by more than 16 percentage points and 30,000 votes on Nov. 6. The Granite Bay Republican said he’s hopeful the Legislature will move forward in 2019 on Assembly Concurrent Resolution No. 215 on artificial intelligence. The legislation affirms lawmakers’ support for the 23 Asilomar AI Principles, developed by a group of researchers, economists, ethicists, legal scholars and philosophers in 2017 to guide the responsible development of AI. Kiley introduced the resolution, and both houses passed it unanimously.

Among its 23 precepts, members convened in Asilomar, Calif., said that the goal of AI research should be to create “beneficial intelligence”; that research funding should follow AI investments to ensure its positive use and ask “thorny” questions on law, ethics and computer science; that using AI on personal data shouldn’t curtail real or perceived liberties; and that “an arms race in lethal autonomous weapons should be avoided.”

Kiley, who represents the Sixth Assembly District, said the Legislature will “look at how to build on that” next year and called the matter “very timely” following the recent Little Hoover Commission report on AI — which mentioned Kiley’s resolution.

“We’re exploring a number of ways we might follow up there and really move that conversation forward so the state can take full advantage of the tremendous possibilities of AI,” Kiley said. He could be viewing tech and innovation from the upper house of the Legislature before too much longer; Kiley has announced his intentions to run for the state Senate District 1 seat held by Ted Gaines, who was elected to the State Board of Equalization. The exact timing of a special election awaits Gaines’ expected resignation from the state Senate in January. But a staff member in the office of Assemblyman Evan Low, caucus co-chair, affirmed that because the caucus is bicameral and includes Assembly members and state senators, Kiley would be able to remain a member of the Tech Caucus, as it’s known.

The assemblyman said it’s not yet clear how caucus members will work with incoming Gov.-elect Gavin Newsom, who will take office in January, and indicated much is “uncertain” about how the state’s new elected leader will approach innovation and technology and what his priorities will be. Kiley said that he thinks his own work on tech in the Assembly has “provided a strong foundation to move forward” and that state senators who were receptive to the 23 principles — he named Sens. Bill Monning, D-Carmel; John Moorlach, R-Costa Mesa; and Hannah-Beth Jackson, D-Santa Barbara — “would make good partners.”

State cybersecurity remains vitally important as well, particularly as threats and bad actors continue to change course and present new challenges, the legislator said, noting the state has made good progress in ordering its own cybersecurity infrastructure. He pointing to the creation in 2015 by Governor’s Executive Order of the California Cybersecurity Integration Center (Cal-CSIC), charged with improving coordination and strategy and reducing the likelihood and severity of cyberattacks.

Kiley, who is also co-chairman of the Assembly’s privacy committee, said he expects a number of bills to be introduced next year that touch on privacy issues and information security. But he said it will be important for legislators to review proposed policy carefully to avoid “frivolous litigation” that creates vague standards and actually misses the mark on safeguarding privacy.

By the numbers: A look at the 2017-18 Legislature

BY CHRIS MICHELI

http://capitolweekly.net/numbers-look-2017-18-legislature/

With the recently concluded 2017-18 legislative session, it is valuable to look at some of the key data, including bill introductions, the fate of those bills, the work of the committees, the lawmakers’ legislation and the actions of the governor.

So let’s crunch some numbers: We’ll look at the Senate first.

Senate bills
In the Senate, 694 bills were introduced in 2018. Of those, 518 were passed by the Senate, while only six were defeated on the Senate floor. So, 74.6 percent of introduced bills passed out of the Senate, while just 0.8 percent of introduced bills failed passage on the floor.

At the conclusion of 2018, 52 Senate bills had been vetoed during the year—7.5 percent of introduced bills were vetoed—and 356 bills were chaptered in 2018, meaning that 51.3 percent of bills introduced in the Senate were enacted into law.

That brings the total number of Senate bills introduced in the 2017-18 Session to 1,511. Of those, 647 were signed into law (42.8 percent), and 86 were vetoed (5.5 percent).

By way of background, 817 bills were introduced in the Senate in 2017. Of those, 514 bills were passed by the Senate, while only three were refused passage on the Senate floor. So, 63 percent of introduced bills passed out of the Senate, while 0.4 percent of introduced bills failed passage on the Senate floor.

At the conclusion of 2017, 34 Senate bills were vetoed in 2017 (4 percent of introduced bills were vetoed), and 291 bills were chaptered in 2017. That means 35.6 percent of introduced bills were enacted into law.

2018 data: CommitteesIn terms of bills being considered by standing committees in the just-concluded 2018 session, the following five committees had the highest number of original committee references, which means they were the first stop for bills assigned by the Rules Committee:

  • Public Safety, 111
  • Budget, 108
  • Governance & Finance, 105
  • Education, 88
  • Transportation & Housing, 79

The five committees with the highest number of senate bills and assembly bills referred:

  • Education, 313 (88 + 225)
  • Public Safety, 288 (111 + 177)
  • Transportation & Housing, 237 (79 + 158)
  • Health, 226 (77 + 149)
  • Governance & Finance, 223 (105 + 118)

2017 data: CommitteesIn 2017, the three standing committees with the highest number of original committee references were:

  • Education, 166
  • Public Safety, 146
  • Transportation & Housing, 140

The committees with the lowest number of original committee references were:

  • Agriculture, 17
  • Insurance, 19
  • Veterans Affairs, 19

Senate bills and authorship
The most bills introduced during the 2017-18 session were 49 by Jerry Hill, followed by Ricardo Lara with 45.

Eleven senators introduced 40 bills (Cathleen Galgiani, Steve Glazer, Ed Hernandez, Bob Hertzberg, Connie Leyva, John Moorlach, Janet Nguyen, Richard Pan, Anthony Portantino, Mark Stone and Scott Wiener), while five senators introduced 39 bills (Ben Allen, Steven Bradford, Hannah-Beth Jackson, Nancy Skinner and Henry Stern). Senator Bill Dodd introduced 38.

2017 data: AuthorsThe most bills were introduced by Ricardo Lara with 29. Galgiani introduced 28; Jerry Hill had 26; and five senators introduced 24 bills each (Bradford, Glazer, Leyva, Nguyen and Portantino).

Assembly Bills
Some 1,531 bills were introduced in the Assembly in 2018. Of those, 942 bills were passed, and 16 were refused passage. So, 61.5 percent of introduced bills passed out of the Assembly, while just 1 percent of introduced bills failed passage on the Assembly floor.

At the conclusion of the 2018 session, 149 Assembly bills were vetoed during the year (9.7 percent of introduced bills were vetoed), and 660 were chaptered in 2018 (43 percent of introduced bills were enacted into law).

That brings the total number of Assembly bills introduced in the 2017-18 session to 3,264. Of those, 1,228 were signed into law (37.6 percent), and 233 were vetoed (7.1 percent).

As a comparison, 1,733 bills were introduced in the Assembly in 2017. Of those, 970 bills were passed, while only nine were refused passage on the Assembly floor. That left 763 bills as two-year measures which were considered in January 2018. So, 56 percent of introduced bills passed out of the Assembly, while just 0.5 percent of introduced bills failed passage.

At the conclusion of the 2017 session, 84 assembly bills were vetoed (4.8 percent of introduced bills were vetoed), and 568 were chaptered in 2017 (32.7 percent of introduced bills were enacted into law).

2018 data: Assembly policy committees and bills referredIn terms of assembly bills being considered by standing committees in the concluded 2018 session, the five committees with the highest number of original committee references were:

  • Public safety, 294
  • Health, 219
  • Education, 210
  • Transportation, 182
  • Judiciary, 181

The five committees with the total number of assembly and senate bills referred:

  • Public safety, 384 (294 + 90)
  • Health, 300 (219 + 81)
  • Education, 260 (210 + 50)
  • Judiciary, 247 (181 + 66)
  • Transportation, 233 (182 + 51)

2017 data
In terms of bills considered by standing committees in 2017, the committees with the highest number of original committee references were:

  • Public Safety, 195
  • Health, 147
  • Education, 140
  • Judiciary, 133
  • Environmental Safety

The committees with the lowest number of original committee references were: AESTIM (nine), Aging (12), Communications (13) and Banking (18).

For the just-concluded 2017-18 legislative session, in terms of authors and number of bills, the most bills introduced were by Rep. Phil Ting with 102 bills (including budget-related measures).

Seven Assembly members introduced 50 bills (Richard Bloom, Rob Bonta, Autumn Burke, Eduardo Garcia, Gonzalez Fletcher, Marc Levine and Blanca Rubio). Seven assembly members had 49 bills (Joaquin Arambula, Anna Caballero, Monique Limó, Evan Low, Bill Quirk, Miguel Santiago and Jim Wood), and three assembly members introduced 48 bills (Mike Gipson, Jacqui Irwin and Patrick O’Donnell).

In terms of authors and bills in 2017, the most bills were introduced by Ting with 78 (but that number included the budget trailer bills). Thereafter, Bloom introduced 32 bills; Rep. Sharon Quirk-Silva introduced 31; Levine introduced 30; and, four assembly members introduced 29 bills each (Caballero, Frazier, Gipson and Lorena Gonzalez Fletcher).

Actions on bills by the governor
There were 1,217 bills that reached the governor’s desk in 2018 out of 2,225 bills introduced (Senate, 694; Assembly 1,531). So, 55 percent of the bills introduced made it to the governor’s desk. Forty-five percent of the bills introduced got signed into law, while 9 nine of the bills introduced got vetoed.

Signed bills: 1,016

  • 5 percent of the bills were signed
  • 65 percent of the signed bills were assembly bills
  • 79 percent of the assembly bills were authored by Democrats
  • 14 percent of the assembly bills signed were authored by Republicans
  • 7 percent of the assembly bills were committee bills
  • 35 percent of the signed bills were senate bills
  • 77 percent of the senate bills signed were authored by Democrats
  • 13 percent of the senate bills signed were authored by Republicans
  • 10 percent of the senate bills signed were committee bills

Vetoed bills: 201

  • 5 percent of the bills were vetoed
  • 74 percent of the vetoed bills were assembly bills
  • 84 percent of those vetoed bills authored by Democrats
  • 13 percent of the assembly bills vetoed were authored by Republicans
  • 3 percent of the assembly bills vetoed were committee bills
  • 26 percent of the vetoed bills were senate bills
  • 94 percent of the senate bills vetoed were authored by Democrats
  • 6 percent of the senate bills vetoed were authored by Republicans

During the 2017 session, 1,733 total bills were introduced in the Assembly (1,687 by the Feb. 17 introduction deadline). About 37.5 percent of the introduced bills got to the governor’s desk, with 32.7 percent of the introduced bills getting signed, and 4.8 percent getting vetoed.

A total of 817 total bills were introduced in the Senate in 2017 (808 by the Feb. 17 introduction deadline), while 39.9 percent of the introduced bills got to the governor’s desk with 35.7 percent of the introduced bills getting signed and 4.2 percent getting vetoed.

In 2017, Gov. Jerry Brown acted on 977 bills that were on his desk during that session. He signed 859 bills (88 percent) and he vetoed 12 percent of those bills (118 out of 977 bills).

In 2017, of the 859 bills that the governor signed, 567 were Assembly bills and 292 were Senate bills. Of the 567 Assembly bills, 85 percent were authored by Democrats and 15 percent were authored by Republicans. Of the 292 Senate measures signed into law, 86 percent were authored by Democrats, and 14 percent were authored by Republicans.

In 2017, of the 118 bills that the governor vetoed, 84 were Assembly bills, and 34 were Senate bills. Of the 84 Assembly bills that were vetoed, 87 percent were authored by Democrats, and 13 percent were authored by Republicans. Of the 34 Senate bills, 82 percent were authored by Democrats, and 18 percent were authored by Republicans.

In 2016, Gov. Brown acted on 789 bills that were on his desk during September. He vetoed roughly 18.25 percent of those, and he allowed one bill to become law without his signature. Including all the bills acted upon during the 2016 session, the governor vetoed 159 out of 1,059 bills, a 15 percent veto rate.

Governor’s vetoes: Historical data
To put this year’s gubernatorial bill actions in context, here are veto numbers from five prior governors.

  • Between 2011 and 2018, Brown vetoed between 10.7 percent and 16.5 percent of the bills
  • Between 2004 and 2010, Gov. Arnold Schwarzenegger vetoed between 22.2 percent and 35 percent of the bills
  • Between 1999 and 2003, Gov. Gray Davis vetoed between 6 percent and 25 percent of the bills
  • Between 1991 and 1998, Gov. Pete Wilson vetoed between 8.6 percent and 24.5 percent of the bills
  • Between 1983 and 1990, Gov. George Deukmejian vetoed between 9.5 percent and 20.3 percent of the bills
  • Between 1975 and 1982, Brown vetoed between 1.8 percent and 7.9 percent of the bills

Bills getting to the governor’s desk: Historical data
During the last eight years that Gov. Brown has served in office, the number of bills reaching his desk has ranged from a low of 870 bills during his first year in office to a high of 1,217, his final year in office. His veto rate has been a low of 10.7 percent (his third year in office) to a high of 16.5 percent (his last year in office).

To put Brown’s actions in context, here are actions by Brown and five prior governors.

  • Between 2004 and 2010, Schwarzenegger got between 893 and 1,265 bills on his desk
  • Between 1999 and 2003, Davis got between 967 and 1,454 bills on his desk
  • Between 1991 and 1998, Wilson got between 1,075 and 1,710 bills on his desk
  • Between 1983 and 1990, Deukmejian got between 1,455 and 2,143 bills on his desk
  • Between 1975 and 1982, Brown got between 1,221 and 1,674 bills on his desk

Total bill introductions: Historical data, year by year
2017: 2,495
2016: 1,993
2015: 2,297
2014: 1,930
2013: 2,256

Total bill introductions: Two-year sessions over two decades
2017-18: 3,624 Assembly bills, 1,511 Senate bills (4,775 total)
2015-16: 2,915 ABs and 1,481 SBs (4,396 total)
2013-14: 2,766 ABs and 1,467 SBs (4,233 total)
2011-12: 2,700 ABs and 1,580 SBs (4,280 total)
2009-10: 2,799 ABs and 1,495 SBs (4,294 total)
2007-08: 3,084 ABs and 1,781 SBs (4,865 total)
2005-06: 3,076 ABs and 1,853 SBs (4,929 total)
2003-04: 3,118 ABs and 1,918 SBs (5,036 total)
2001-02: 3,061 ABs and 2,101 SBs (5,162 total)
1999-00: 2,943 ABs and 2,206 SBs (5,149 total)
1997-98: 2,817 ABs and 2,242 SBs (5,059 total)
1995-96: 3,504 ABs and 2,178 SBs (5,682 total)
1993-94: 3,838 ABs and 2,138 SBs (5,976 total)

Editor’s Note: Chris Micheli is a principal with the Sacramento governmental relations firm of Aprea & Micheli, Inc. He may be contacted at (916) 448-3075.

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MOORLACH UPDATE — 2019-20 Session Underway — December 4, 2018

I flew up to Sacramento on Sunday for meetings with the Senate Republican Caucus and dinner with the 2019-20 Senate members, a biennial tradition.

On Monday, the newly elected and re-elected Senators from the even-numbered districts were sworn in. After staff meetings, I flew home late last evening. During the moments before the ceremony, I was caught by the LA Times and provided the comment in the first piece below. It also gives you the flavor of the day and what to expect in the coming year.

I did agree to co-author a bill by Sen. Scott Wiener (D – San Francisco) on building affordable housing along transit lines. But, with the success of AB 448 earlier this year, I want to continue the effort to find the housing units needed to address Orange County’s homeless crisis. Urbanize LA provides the details in the second piece below. (Reviewing the legislative process over the 2017-2018 Legislative Session and beyond will be the subject of tomorrow’s UPDATE.)

Other activities have also been occurring outside the Capitol on their own. Carl DeMaio is pursuing another statewide ballot measure that would restructure the way California’s transportation money is allocated. It looks like an editorial writer for StreetsBlog California is not happy about it and decided to take snipes at both Carl and me in the third piece below.

The writer has worked in the public sector in the transportation sector and has an obvious bias. But, she has to overlook so many flaws, many of which I have provided over the time since I arrived at the Capitol in March of 2015.

I really wish I could be a promoter of California’s Department of Transportation, but like the High Speed Rail Authority and the DMV, Caltrans is just not achieving the management metrics you and I could be proud of.

California’s Legislature convenes as a record number of Democrats settle in to govern

By JOHN MYERS , JAZMINE ULLOA and PATRICK MCGREEVY

https://www.latimes.com/politics/la-pol-ca-california-legislature-convenes-20181203-story.html

A bumper crop of Democrats convened Monday in the California Legislature, the largest group in the state’s modern history, swept into office by an electoral flood that could create a significant change on big-ticket issues including healthcare and child poverty.

Sixty Democrats joined the Assembly, making up three-quarters of the lower house’s membership and the party’s largest caucus in the chamber since 1883. In the 40-member Senate, 29 lawmakers are Democrats, a high-water mark reached just once before in more than half a century.

Leaders of both houses urged their colleagues to move away from campaigning and toward governing, with a number of pressing issues to tackle in the two-year legislative session ahead.

“I challenge each of you to search within yourselves this session, to find the urgency we will need to match the tasks before us,” Senate President Pro Tem Toni Atkins (D-San Diego) said in opening remarks.

How the historically large contingent of Democrats will govern alongside Gov.-elect Gavin Newsom, who takes office in January, is likely to depend on which issues they prioritize among the scores of bills formally introduced on Monday. Although some lawmakers represent decidedly liberal communities in California’s sprawling urban landscape, others won in districts that were represented by Republicans as recently as the summer — in some cases, that GOP dominance spanned decades.

For Republicans, whose total legislative representation in the new session could fit inside a couple of passenger vans, the path forward could be challenging.

“I’d like to say that I surfed the blue wave and I landed on the shore, and I’m here to continue my work,” Senate Minority Leader Patricia Bates (R-Laguna Niguel) said in remarks during the swearing-in session, drawing laughter from her colleagues.

Practically speaking, their small numbers will require each member to take on extra work to fill the GOP’s allotted spots on legislative committees. More broadly, however, Republican legislators must search for relevance in policy debates where their votes aren’t needed.

“I’m still going through the 12 steps of grief,” Sen. John Moorlach (R-Costa Mesa) quipped.

Republicans must also decide how to interpret the election results — either as the product of a nationalized midterm election under an unpopular GOP president, or as a deeper repudiation of the party’s brand and platform. One Republican, San Diego Assemblyman Brian Maienschein, took the oath of office without yet knowing whether he had retained his seat, his lead shrinking as votes continue to be counted.

Still, Monday’s ceremonial kickoff to the legislative session — after which lawmakers adjourned until Jan. 7 — was marked by camaraderie, not confrontation. New lawmakers’ family members mingled and hugged, posing for photos. Assemblyman Kevin Mullin (D-South San Francisco) brought his twin infants with him, wearing matching sweater vests; Sen. Benjamin Allen (D-Santa Monica) took the oath of office while holding a carrier with his newborn inside. Later, a number of lawmakers gathered with friends for private parties across downtown Sacramento.

It was also an emotional day given the hardships many Californians are facing. Both houses acknowledged a number of deadly events in recent months. Newsom, presiding over the Senate for the final time as lieutenant governor, led the chamber in a moment of silence for those killed in the Camp and Woolsey fires.

Emotional, too, was the call for action in setting the agenda for the year ahead. Assembly Speaker Anthony Rendon (D-Lakewood) took aim at the oft-repeated maxim of California’s “exceptionalism,” telling lawmakers that poverty and the affordable housing crisis have tarnished the state’s reputation.

“We cannot make housing affordable for the masses when the 1% are earning hundreds and thousands of times” what the average worker makes, Rendon said to applause.

Two Democratic senators announced an early effort on that front, introducing a bill to restore affordable housing funding for local governments that was lost when the state abolished redevelopment agencies in 2011.

“We have an opportunity to establish a renewed partnership between the state and cities, with strict accountability measures, to ensure more affordable housing gets built,” state Sen. James Beall Jr. (D-San Jose) said in a written statement.

Others urged lawmakers to embrace the results of a far-reaching study released last month that called for $1.6 billion in additional spending to combat child poverty. A Fresno assemblyman, Democrat Joaquin Arambula, pledged to reintroduce a plan to extend Medi-Cal coverage to all California residents without legal immigration status. Both efforts would be expensive and could test the boundaries of a state budget that has ample cash reserves but has largely avoided the kinds of program expansions that would continue even in the presence of a recession and budget shortfalls.

“I think working people’s issues have to be what we address,” newly elected Sen. Maria Elena Durazo (D-Los Angeles) said, adding later that the resounding win for Democrats was “a call for government to fill human needs — and human needs means shelter, a place to live; it means that from a job you can do everything that you aspire to do.”

Lawmakers also introduced bills to implement universal preschool and new mental health services in the state, and to extend the time to file workplace harassment claims. Another new proposal aims to bolster a spring ruling by the California Supreme Court that limited the power of companies to classify workers as independent contractors, ensuring a heated battle with the business industry.

And new gun-related laws were proposed a month after a mass shooting in Thousand Oaks, including a bill to tax the sale of semiautomatic firearms — the revenue would fund violence prevention programs in California. A second bill, vetoed in the prior session by Gov. Jerry Brown, would allow teachers, employers and co-workers to ask judges to remove guns from people they believe to be a danger to the public.

National politics were not completely absent during the opening events, though not as dominant a presence as it was in 2016 when Democrats were visibly shaken by the election of President Trump. Rendon chastised Trump during his speech Monday for the decision to send troops to the U.S.-Mexico border in response to immigration fears — what he said was an assignment “to do nothing but posture.”

“My worst fears have not yet materialized, but the federal reality has been quite bad enough,” Rendon said of Trump.

Members of the Asian Pacific Islander, Latino and Jewish legislative caucuses introduced a resolution that denounced a Trump administration proposal to restrict green cards for those likely to receive public assistance, calling it “classist” and “racist.” Assemblyman David Chiu (D-San Francisco), chairman of the Asian Pacific Islander Legislative Caucus, said it would force “immigrant families to make impossible choices.”

The newly elected members of the Legislature marked a few milestones just by winning office. Twenty-three women — more than one-quarter of the house — now serve in the Assembly, and all but two of them are Democrats. The Legislature, where brothers have served at the same time, now has its first sister act: Baldwin Park Democrats Assemblywoman Blanca Rubio and Sen. Susan Rubio. And with members now eligible to serve longer in a single house — a change brought about by a 2012 ballot measure — the Legislature is welcoming its smallest freshman class since after the 1988 election cycle.

Newsom, who will find himself sparring with many of the new members when he becomes governor, urged lawmakers to move quickly to the work at hand.

“Let us not forget why you are here. And that’s not to be something, but to do something,” he said.

Times staff writer Melanie Mason contributed to this report.

California State Senator

Introduces New Bill to Boost

Housing Construction Near

Transit

SB 50 would incentivize apartments in transit-rich

and job-rich areas.

STEVEN SHARP

https://urbanize.la/post/california-state-senator-introduces-new-bill-boost-housing-construction-near-transit

Seven months after a prior attempt died in committee, California State Senator Scott Wiener has introduced new legislation which revives an effort to boost housing construction near transit lines across the state.

Senate Bill 50, dubbed the “More Housing, Opportunity, Mobility, Equity and Stability Act” – or “More HOMES” Act – is co-authored by State Senators Ben Hueso, Anna Bacallero, Nancy Skinner, and John Moorlach as well as Assemblymembers Autumn Burke, Buffy Wicks, Phil Ting, Ash Kalra, Evan Low, Kevin Riley, and Robert Rivas. Informed by the fate of its predecessor SB 827, which was criticized as a “one size fits all” approach to zoning, SB 50 is less heavy-handed, creating an “equitable communities incentive” that can supersede local restrictions on a project-by-project basis, much in the vein of the California’s existing density bonus law and Los Angeles’ Transit Oriented Communities program. The revived effort also takes more care to address the concerns of communities fearing displacement and gentrification, the initial lack of which contributed to SB 827’s early demise.

“We must take bold steps now to address our severe housing crisis and reduce our carbon footprint,” said Senator Scott Wiener in a release. “California’s housing shortage hurts our most vulnerable communities, working families, young people, our environment, and our economy. It also increases homelessness. For too long we have created sprawl by artificially limiting the number of homes that are built near transit and job centers. As a result of this restrictive zoning in urbanized areas, people are forced into crushing commutes, which undermines our climate goals, and more and more Californians are living in wildfire zones. As educational and economic opportunities become increasingly concentrated in and near urban areas, we must ensure all of our residents are able to access these opportunities. I am excited work with a diverse coalition to spur the development of more housing for all income levels while protecting vulnerable communities and ensuring we do more to address climate change.”

If signed into law, SB 50 would waive allow for the construction of apartments near “high-quality transit” – meaning within a half-mile of a rail station or a quarter-mile of a bus stop with frequent service – and also in job-rich areas – which are identified by the Department of Housing and Community Development and the Office of Planning and Research. Developments located within a half-mile radius of a transit stop, but outside of a quarter-mile radius, would be eligible for waivers from height limits less than 45 feet and FAR limits of 2.5-to-1. Developments located within a quarter-mile radius of a transit stop would be eligible for waivers for height requirements under 55 feet and FAR limits of 3.25-to-1. According to a release from the advocacy organization California YIMBY, this effectively amounts to four- and five-story buildings.

These projects would be achieved by requiring the local land use authority – be it a city or a county – to grant an equitable communities incentive to projects that meet the above criteria. This includes a waiver of maximum controls on density and automobile parking requirements greater than .5 spaces per residential unit, and up to three additional incentives or concessions from the existing density bonus law. Local jurisdictions would be free to modify their implementation of the program, as long as they remain consistent with the intentions of the SB 50

Unlike SB 827, which only saw the addition of tenant protections and affordable housing requirements after introduction, SB 50 is starting out with a similar list of provisions.

Sites occupied by tenants within seven years preceding the date of application – including housing that has been demolished or vacated prior to the application – would be ineligible for the incentives, as would properties in which tenants have been evicted through the Ellis Act within the past 15 years.

Additionally, any applicant seeking equitable community incentives for a development would be required to provide affordable housing at either the low-, very low-, or extremely low-income levels at the same levels set under the State density bonus law.

The inclusion of job-rich communities in the revised bill is a response to critics of SB 827, many of whom argued that most transit-rich areas are working-class neighborhoods vulnerable to displacement. Under SB 50, the equitable communities incentives would be available to properties in these job-rich areas – with access to high-quality amenities and schools – even without the presence of rail or high-frequency bus lines.

A more nebulous aspect of the proposed legislation is delayed implementation in sensitive communities, which are defined as those vulnerable to displacement pressure based on indicators such as the percentage of tenant households living at or under the regional poverty line. These communities would see a delayed implementation of SB 50, allowing for a neighborhood-level planning process to develop zoning rules and other policies to encourage multifamily housing development. However, it is unclear what form these rules or policies would take.

Also in response to proponents of local control, SB 50 would not alter any jurisdiction’s current community engagement and design review processes, nor would it change any labor or employment standards for new construction. Any existing ban on housing demolition – consistent with the state’s Housing Accountability Act – would remain in place, and local governments would retain the right to set height limits for new housing outside of areas with access to rail transit.

Likewise, any local requirements for on-site affordable housing that exceed those proposed in SB 50 would be honored.

Similarly, eligibility for any local programs to encourage housing construction near transit – such as the Transit Oriented Communities guidelines in Los Angeles – would make a project ineligible for the equitable communities incentives.

The new legislation comes as California finds itself with an estimated shortage of 3.5 million homes, and calls from incoming Governor Gavin Newsom to close that gap. Bill proponents note that the recent wildfires have only exacerbated the problem, and argue that the solution is to encourage more development in urban cores, rather than on the suburban fringer.

SB 50 is also billed as an opportunity to reduce the state’s carbon footprint by shortening commutes and encouraging transit use and active transportation by placing people in close proximity to major job centers. A recent report from the California Air Resources Board found that the state will fall short of its goal of reducing greenhouse gas emissions to 40 percent below 1990 levels by the year 2030 unless its residents dramatically reduce vehicle travel.

Prop 6 Proponents Introduce Anti-High Speed Rail Initiative

DeMaio also wants to shift all responsibility for state highways to local governments

https://cal.streetsblog.org/2018/12/03/prop-6-proponents-introduce-anti-high-speed-rail-initiative/

Carl DeMaio just won’t go away quietly. After the trouncing of his Proposition 6, which would have repealed the recent increase in gas taxes and caused other mayhem with California’s transportation funding, DeMaio is back with another attempt to screw up the transportation system and end what little progress has been made.

His new initiative, just cleared by the California Secretary of the State to begin collecting signatures, would “remove responsibility and funding for state highway construction and maintenance from the state” and put it in the hands of local governments.

Oh, also: the initiative would kill the California High Speed Rail Project by terminating its funding.

It’s no secret that DeMaio has it out for Caltrans, and would love to take away the department’s funding, but this initiative is ridiculous. Sure, local governments would appreciate the boost in funding, but does any city want to take on the responsibility of maintaining the state highway system? Local agencies also absolutely do not have the capacity to take on the extra work–but DeMaio has the solution to that. The initiative would require that highway construction work be done “by private, non-governmental entities.”

Senator John Moorlach (R-Costa Mesa) has been putting forward these same ideas since he got into office several years ago. Caltrans is inefficient, and therefore its work should be done by private contractors, he says. High-speed rail is a boondoggle and ought to be killed, according to Moorlach. Luckily, his legislative attempts to gut Caltrans and high-speed rail never got anywhere.

Moorlach and DeMaio and their ilk don’t really care about efficiency or improving transportation or any of the things Californians actually care about. What they want is no-strings-attached money going to fatter, faster highways unimpeded by state concerns. They want to get rid of transit because “nobody rides it” and they want to ensure that the only way to get anywhere is by private vehicle, thus guaranteeing that the congestion they say they are worried about grows exponentially into the future.

Imagine what a patchwork the state highway system would become if all planning and maintenance work were the responsibility of local governments. Imagine the crush of future congestion if no one could choose to take transit anywhere, because what little of it exists is even slower and more disconnected than it is today. Imagine a future without a world-class rail line, where the only way to get anywhere in California is via ever-increasingly congested highways of varying widths and conditions.

That’s a big nope.

DeMaio has until May to collect enough signatures to put this on the 2020 ballot. Because it proposes a constitutional amendment, it needs more signatures than a regular initiative–in this case, 585,407 signatures of registered voters–to qualify. Once on the ballot, it would only need a simple majority vote to pass.

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