MOORLACH UPDATE — Gas Tax Repeal Initiatives — September 21, 2017

When former State Assemblyman David Hadley considered a run for Governor in 2018, he came to the Capital and met with his former legislative colleagues and explained his exploratory efforts. David and I had a long, private discussion about his potential plans. One of the key points we both agreed on was how critical it is to have just one Republican running in order to secure at least a place in the “top-two” June Primary and then go on to the General Election in November. He was deliberate, thoughtful and considerate of the counsel he was given. Unfortunately, he has since dropped out of the race.

There are currently two Republican candidates running for Governor. One is leading a ballot measure drive that is aiming to repeal the recent gas and auto tax increase, SB 1, recently approved with a two-thirds vote of the State Legislature (see MOORLACH UPDATE — Do You Recall? — July 10, 2017 ). This repeal effort is a righteous cause. The other has a proposed ballot measure that is aiming to restructure the state legislature with an innovative, but complex and confusing electoral and neighborhood system of representation. While an intriguing way to deal with our out-of-touch legislature that represents too many people, his proposal is neither a reasonable solution nor a worthy cause.

Although David Hadley informed me of his potential intentions to run for Governor, Assemblyman Travis Allen did not. I found out when you did, via the news media.

I have not endorsed Assemblyman Allen or John Cox, the other candidate, in their gubernatorial efforts at this time.

Immediately after the passage of SB 1, KOGO AM 600 Radio Talk Show Host Carl DeMaio filed a request to petition the recall of State Senator Josh Newman. Senator Newman’s vote proved to be crucial, as he was one of the necessary 27 votes to obtain the required two-thirds passage of this new tax.

Not too long thereafter, Assemblyman Allen filed a request with the Secretary of State to circulate a petition to repeal the gas tax because no one else did. He filled the vacuum and made a bold leadership move. It garnered him significant attention in the social media world. In full disclosure, around that time I accepted Assemblyman Allen’s invitation to serve on his initiative’s advisory committee.

In the meantime, DeMaio quickly gathered more than 100,000 signatures for the recall in Sen. Newman’s District, far more than the minimum required.

Assemblyman Allen’s efforts were stymied by the State Attorney General’s customary poison pill where this statewide office traditionally writes a bogus ballot title and summary for conservative measures to confuse potential petition signers and ballot measure voters.

Earlier this week, Daily Pilot columnist Barbara Venecia asked me to give a status report on the gas tax repeal effort. Not too long after I sent my quick analysis, something quite amazing happened in Superior Court, where Assemblyman Allen contested the regular nonsense produced by the AG’s office. He prevailed. According to the LA Times, “A judge tentatively ruled Tuesday that the state-written title and summary of an initiative to repeal the recent gas-tax increases were misleading and should be rewritten by the state attorney general’s office.” Unheard of. Kudos to the Assemblyman.

The Daily Pilot piece appeared online last evening. It is still not in print and may appear in tomorrow’s edition or over the weekend. But, Assemblyman Allen called me to express his displeasure with my quotes. Obviously, I did not expect an appropriate ruling out of our state’s court system. I meant no affront to the Assemblyman. And, I apologized. Apparently, the now vying initiatives has the Assemblymember a little on edge, which is an honest response. I wish him all the best in both of his efforts. The fun between these two statewide leaders is provided in the first piece below.

Bloomberg Businessweek provides a six-year-old quote in their column about Puerto Rico (MOORLACH UPDATE — JWA and #2 — November 14, 2011 november 15, 2011 john moorlach — unfortunately, the full piece did not load up on the blog).

After reading the piece you may wonder if this is a foretaste of what’s in store for the state of California. I don’t believe that Puerto Rico’s situation comes close to what occurred in Orange County. But, not providing full disclosure of the true facts and trends is not a good idea. Will similar trends be in California’s future? After reading the piece, you will understand why I voted in opposition to every bond bill on the Senate Floor.

Newport council should follow radio host into battle against gasoline tax spike

By Barbara Venezia

A few weeks ago I wrote about how the majority of Newport Beach’s City Council voted not to accept the new state gas tax revenue as a misguided protest against it. They later rescinded that decision after public outcry that they were throwing away money.

I suggested a smarter approach would be to join the movement to repeal the tax led by San Diego radio host Carl DeMaio.

I soon heard from readers who had no idea who DeMaio is. He’s a guy who should be on your radar.

To give you some background, DeMaio grew up in Orange County, is a graduate of Georgetown University, and moved to San Diego in 2002. He started his first company, the Performance Institute, which provides training and consulting solutions to financially-troubled government entities, at 23.

Crusading to reform government by improving transparency and fiscal accountability won DeMaio a seat on the San Diego City Council in 2008. He was instrumental in turning that city around from the brink of bankruptcy with his “roadmap to recovery reform agenda.”

And though his bids for mayor in 2012 and Congress in 2014 were unsuccessful and riddled with controversy, DeMaio remained committed to state-wide fiscal reform.

He’s chairman of Reform California, which is not only working to repeal the gas tax, but is pushing for public employee pension reform as well.

DeMaio’s message has garnered him a large audience for the daily news and talk show he co-hosts on KOGO-AM 600 in San Diego.

Did I mention he’s a gay, married Republican? He is all about shaking things up.

Sen. John Moorlach (R-Costa Mesa) calls him a “warrior.”

I talked with DeMaio this week while he was in Washington, D.C. He said he is taking a two-punch approach of repealing the gas tax and mounting an effort to recall Sen. Josh Newman (D-Fullerton).

Newman, from a historically Republican district, was a deciding vote in passing the $5.2 billion gas tax — making California gas taxes the most expensive in the country. A recall website is collecting signatures — 100,000 so far according to Moorlach.

“And the data shows that all segments of Josh’s district oppose the gas tax,” says Moorlach. “Male/female. Black, Hispanic, white. Democrats and Republicans.”

Assemblyman Travis Allen (R-Huntington Beach) is also working on a gas tax repeal initiative and is waging a battle in the courts.

“It gave him enough name ID that it encouraged him to also run for governor,” Moorlach says. “Carl’s team will probably leapfrog Allen’s efforts and be very successful.”

Moorlach has long been critical of Caltrans spending.

In 2014 when the state Legislative Analyst’s Office determined that Caltrans had 3,500 too many architects and engineers at a cost of $500 million per year, Moorlach called for nixing extra staff and putting these dollars toward our roads.

Of course that didn’t happen.

“Over the past 14 years, while gas taxes were rising, transportation spending has remained virtually flat,” Moorlach wrote in the Orange County Business Journal in 2016. “This means that the state has redirected transportation tax revenues.” .

DeMaio told me only 20 cents of every dollar actually makes it to our roads, while the rest is diverted to who knows where.

“I think any government agency needs to be careful of spending money that’s not theirs,” he says.

DeMaio and group have been working with legal experts to come up with a state constitutional amendment. The objective is to not only roll back the vehicle and gas tax hikes, but eliminate future politicians’ ability to raise taxes without a vote of the people.

DeMaio says eliminating these new gas taxes could save Californians an estimated $300 annually.

The initiative measure to be submitted to voters was filed with the State Attorney General’s office Sept. 14.

The reasons behind the action are included in the Statement of Findings:

“California’s taxes on gasoline and car ownership are among the highest in the nation. (b) These taxes have been raised without the consent of the people. (c) Therefore, the people hereby amend the Constitution to require voter approval of increases in the gas and car tax.”

DeMaio needs to collect 585,407 signatures for the measure to be on the November 2018 ballot. Reform California has already received pledges from over 200,000 voters who want to sign the petition once the forms are issued by the state — DeMaio is encouraging more voters to sign up at I did.

Like many, I’m not happy with the increase and the fact that legislators in Sacramento think voters are an endless ATM. Californians pay the highest tax rate in the country, have the highest rate of poverty, and our roads aren’t great either. Something is terribly wrong here.

BARBARA VENEZIA lives in Newport Beach. She can be reached at bvontv1.


When All Else Fails, Sue Wall Street

There’s a lot of blame to go around, but banks have deep pockets and a history of municipal-debt settlements.

By Lisa Abramowicz

Disagreements about money often have a clear solution: Everyone sues each other. That’s the American way.

And so it goes for Puerto Rico, the fiscally crippled island that incurred $74 billion of debt over a period when its population and economy were shrinking. Investors have brought many suits against the commonwealth, which now appears to be setting the stage for its own lawsuit against big Wall Street banks.

After all, going after large banks has turned into standard operating procedure for big municipal insolvencies. Just think of Orange County, California, which worked out $800 million in settlements from Merrill Lynch & Co. and others after going bankrupt in the 1990s.

In the past few decades, a key lesson for troubled municipalities has been, “Who can you sue for bringing you to this crazy place?” John Moorlach, who became treasurer of Orange County after it filed for bankruptcy, said in a 2011 Bloomberg News article. These banks actually have money and profits to go after. They also have a dubious public reputation, making them good public whipping posts.

This brings us to Puerto Rico, which is seeking to restructure its onerous debt load as soon as possible and whose already frayed finances are going to be tested by hurricane damage. The island’s federal oversight board just hired a law firm to investigate how Puerto Rico’s bonds were marketed and other issues surrounding its excessive borrowing, among other issues, Bloomberg News reported Monday. One board member said the probe “is going to be as broad as can be.”

That’s thinly veiled code for “let’s see if we can go after big banks for distributing these bonds.”

As Joe Mysak, Bloomberg’s municipal bond market expert, put it, “Wall Street will pay. This will provide the foundation.”

It’s overly simple, of course, to say big banks should have known better than to underwrite Puerto Rico’s excessive debt. Without a doubt, big banks could have been more cautious when helping Puerto Rico with its finances. It’s not too hard to see how it could be imprudent to double the commonwealth’s debt load in the decade after 2004 as the population dropped about 16 percent. Arguably, large banks were thinking more about the fees they could earn than the feasibility of the island’s capital structure when investors couldn’t buy enough high-yield triple tax-free securities .

That said, Puerto Rico and its local financial institutions aren’t innocent bystanders. The island’s leadership failed to keep its promises to shore up its finances and used mutual-fund money as the island’s piggy bank. Big Puerto Rican banks, including Banco Santander Puerto Rico, the Government Development Bank for Puerto Rico and Banco Popular de Puerto Rico, earned millions of dollars in fees as they advised on financial structures and arrangements.

Meanwhile, the island’s debt buyers also hold some blame for racing to purchase higher-yielding bonds without truly assessing the risks. Even some big U.S. banks even expressed nervousness to them about the island’s finances.

Clearly there’s plenty of blame to go around. But big Wall Street banks have a target on their backs almost out of habit. It’s easy to point a finger at them for failing to be a more judicious gatekeeper on the debt sales, regardless of whether they actually did anything improper. Puerto Rico certainly appears to be setting the stage to do just that.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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