MOORLACH UPDATE — Joint Informational Hearings — November 1, 2018

After the conclusion of the Regular 2017-18 Legislative Session at the end of August, State Legislators enjoy a supposed “break.” But, for up to 75 percent of them, they are actually enjoying re-election campaigns.

However, committee chairs still hold hearings to address key subjects that they either didn’t have time for or there was some special request. I’ve recently flown up to Sacramento for three such hearings.

Obviously, this is not a quiet break. And, Republicans should attend to ask the tougher questions. So I do. One major concern was a very recent and unflattering State Auditor report of the California Department of Housing and Community Development (see

Audit reports are issued, but rarely acted upon in Sacramento. With ballot propositions impacted, wouldn’t it be wise to clean up the management of a department that is responsible for administering housing bonds first before requesting more bond proceeds? I’m just sayin’.

It also gives me an opportunity to provide recommendations, such as better coordination between state departments and agencies and the benefits of creating the office of a Chief Operating Officer.

On October 15th I traveled to Sacramento for a Joint Governance and Finance Hearing on the recent U.S. Supreme Court Wayfair online sales tax decision. This monumental decision will keep the newly created California Department of Tax and Fee Administration (CDTFA) busy. The CDTFA was broken out of the State Board of Equalization’s core responsibilities by the majority party last year. So far, CDTFA is struggling to figure out what their job is and has experienced some awkward growing pains (for an example, see I’m hopeful that the dust will settle soon. But, it was very helpful to meet the department head and listen to his challenges and managerial efforts to meet them. Again, a COO would also be helpful here.

This week I flew up for a Joint Insurance Committee hearing to address homeowners’ insurance concerns for families who lost their homes to the devastating fires in recent months. Ironically, it was on a zero-humidity, windy, potential fire warning day. I reminded the committee members present that after the 1993 Laguna Beach fire, only half of the homes were rebuilt three years later. From Sacramento, I had to drive to Napa Valley College for the venue. KCRA-TV 3 was at the hearing and their report can be seen at

A joint committee hearing usually includes members of both the Senate and Assembly committees. However, on October 2nd, I attended a hearing titled “Housing for Working Families: How Do We Pay For It?” for two Senate committees, Senate Governance and Finance, on which I serve, and Senate Transportation and Housing. Since I love euphemisms, knowing that the title should state more clearly that the “we” is “you.” Consequently, I thought it would be helpful if I provided some details of this hearing to keep Californians informed.

The submittal is in Fox & Hounds and mentions AB 448 (see MOORLACH UPDATE — AB 448 and SB 1363 — September 12, 2018) and SB 1297 (see MOORLACH UPDATE — SB 1297 – COO — April 19, 2018 and
Regretfully, the real reasons for California’s housing crisis were not on the agenda of this meeting, but will be discussed at a second Senate Governance and Finance and Senate Transportation and Housing Joint informational hearing on November 16th in downtown Los Angeles. For those who wish to attend, you may want to join me that morning for a train ride to Union Station. It’s not often that a Legislative hearing is this close to the OC.

Grappling with California’s Housing Crisis

John Moorlach

By John MoorlachState Senator representing the 37th Senate District

We see California’s housing crisis every day as the homeless permeate our streets, businesses and neighborhoods. To address that, I participated in the joint informational hearing of the Senate Transportation & Housing and Governance & Finance Committees on October 2. The title: “Housing for Working Families: How Do We Pay for It?”

The video and agenda are here. And the Digital Democracy transcript is here.

The discussion brought up Assembly Bill 448, by Assembly Members Tom Daly, D-Anaheim, and Sharon Quirk-Silva, D-Fullerton. I strongly supported the bill, which sets up the Orange County Housing Finance Trust to enable local municipalities to plan and construct housing for the homeless and those with low incomes. It received unanimous, bipartisan support in both chambers of the Legislature.

“It’s very important to have those trust funds and have as many sources as possible going into them,” said Matt Schwartz, president and CEO of the California Housing Partnership Corporation. In Orange County, we hope to harness existing public and private funds and contributions from governments and foundations.

Enter Proposition 2 on the November ballot, called No Place Like Home. I sponsored putting it on the ballot with state Sen. Kevin DeLeon, D-Los Angeles, when he was the Senate’s president pro Tem, before the Assembly Budget Committee assumed ownership of the bill at the end of the budget process.

Prop. 2 was praised by Lisa Bates, deputy director of financial assistance at the California Department of Housing and Community Development. It would not increase taxes, but better use the proceeds of Proposition 63 from 2004, the 1 percent tax on millionaires for mental health programs.

To clarify problems from a lawsuit, Prop. 2 would permit the state to borrow up to $2 billion, with Prop. 63 to back bonds to fund housing for homeless people with mental health problems. So many of the homeless are on the streets because of substance dependency and mental issues.

Prop. 2 is unique because it taps an existing funding stream via the Mental Health Services Act.

Taxes, Bonds and Debt

Some counterproductive ideas came up at the hearing. Schwartz commended last year’s Senate Bill 2, by state Sen. Toni Atkins, D-San Diego, now the president pro-tem. To fund homeless programs and low-income housing, it imposed a tax of up to $225 at the time of the recording of every real estate instrument, paper or notice. It would raise between $200 and $300 million a year.

But the tax will increase the price of housing. So there’s always a cost. And it was imposed at a time the state was overflowing with $12 billion in surplus revenues.

Then there’s Proposition 1 on the ballot, $4 billion for affordable housing for low-income buyers and veterans. It may cost up to double that, $8 billion, to pay down over 35 years. And the Legislative Analyst estimates the yearly cost to pay down the bonds would be $170 million annually.

At the hearing it was brought up by Larry Flood, director of financing and interim director for multifamily programs at the California Housing Finance Agency. He pointed out if it passed, “We can provide down-payment and/or closing-cost assistance to an additional 20,000 California first-time home buyers over the next three to six years, depending on market conditions.”

I recently asked the State Treasurer’s Office for the cost of the five previous housing bonds voters passed in 1990, 2000, 2002, 2006 and 2014. The total debt service – principal plus interest – for them is $369 million for fiscal year 2018-19 and $422 million for fiscal year 2019-20. So if Prop. 1 passes, the cost would rise to $592 million in 2019-20. (Fortunately, the payments do decline starting in 2022.)

Because these bonds are paid from the general fund, and cannot be postponed, during an economic downturn they could end up causing tax increases. And tax increases hurt everyone, especially the poor and homeless. Even if the “rich” are taxed, that means they have less money to invest in new housing – making the housing crisis worse.

As a CPA, I stress the importance of audits to make sure public money is being spent properly, especially on existing and potential future bonds. So I asked Bates about the September 20 audit of her department by State Auditor Elaine M. Howle. It found, “oversight of housing bond funds remains inconsistent and that HCD has failed to follow through on half of our recommendations from previous reports. We found problems related to how HCD is monitoring some bond programs, whether its housing bond database can perform key functions, and how it is ensuring that it does not exceed administrative spending limits.”

Bates replied, “And so we feel that many of the recommendations that they have provided us, we have already implemented or are well on our way to implementing. The first report will be in November if we have a 60-day report to the Auditor due. And so within that report, we expect to show a tremendous amount of progress and headway in having addressed many of the concerns that were raised.”

That’s something to be watched. And shouldn’t we make sure existing bond funds are being spent properly before voting for new ones?

Who’s In Charge Here?

I also asked her about the organizational chart of the state government, including housing. “What do we have, the Governor? And then we have someone, and then we have all these boxes underneath. Who is the point person to coordinate with all of these departments and agencies?”

She replied, “So one of the things that the Legislature did last year is to move the Homelessness Coordinating and Financing Council from a department level where we had initiated it up to the agency level. So really this is a product of that council that is seeking to coordinate across our various state departments in terms of what we need to do to further address homelessness across the state.”

She pointed out Business, Consumer Services and Housing Agency Secretary Alexa Podesta is the chair of the council. Caltrans was added, but the council “has representation across the various state departments that are implementing these programs and more. And so it is the council’s goal and objective to help ensure [housing is the main concern] of our programs across the state.”

That shows why the state needs not just a governor, largely a political position, but a Chief Operating Officer, who would get down in the trenches and make sure state agencies are functioning efficiently. My Senate Bill 1297 would have created this COO position. Although it passed two committees this year, it was not brought before the full Senate. I’m considering bringing it back next year.

In his October 15 column, Dan Walters wrote on a similar theme, “Brown’s Legacy Will Include a DMV Debacle.” It criticized the governor’s “obvious disdain for nuts-and-bolts management of a very large organizational structure,” leading to complete mismanagement at the DMV of not only motor-voter registration, but its basic job of giving Californians driver’s licenses and license plates.

There was much more in this informative, three-hour hearing. It was a good start to a long process and a second is planned for November 16. Hearing Co-Chair Sen. Jim Beall, D-San Jose, summed it up. He said more than $10 billion has been spent on the homeless the last few years, yet, “The crisis is not over, so our work is not done.”


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MOORLACH UPDATE — Final Hours For Bills — September 28, 2018

The Governor has a few more hours to sign or veto the remaining bills on his desk. I’ll try to give you an executive summary next week on how many of the 20 worst bills Gov. Brown actually did, thankfully, veto (see MOORLACH UPDATE — 2018 Top 20 Veto Worthy Bills — September 13, 2018).

One of the bills still on the Governor’s desk is AB 3120. It did not make it to the “Top 20” list, as a number of Republicans voted for it. I am half of the Senators that voted against it. I even spoke against it on the Senate Floor, warning about the potential repercussions implementing this bill will have on our school districts and nonprofits.

AB 3120 would extend the statute of limitations for filing abuse claims and lawsuits. This is righteous. But, it will be expensive.

School teachers who are perpetrators do not pay the damages, the school district does. Usually, the insurance companies provide the settlement funds. But, will they do so after all of the claims have already been settled and now the goal line has been moved? And, will they continue to insure school districts? If they do, how high will the premiums go? And, if not, where will the money come from?

School districts will have few choices if AB 3120 passes and more lawsuits are filed against them. They can litigate and hope to prevail. But, this is an even more expensive proposition if they lose the cases. They can file for Chapter 9 bankruptcy and have a Federal Court forgive the settlement amount, thus damaging further the claimants who have gone through an exercise permitted by this bill. But, we haven’t seen this bankruptcy strategy pursued in California, yet. They could go to Sacramento, which is funded by you, the taxpayers, with hat in hand. But, the general fund is spent out, with additional bond principle and interest payments on the horizon. Or, they could attempt to put an assessment on your property tax bill, again burdening you, the taxpayer.

And I haven’t even mentioned what it may do to nonprofits, who do not have the potential remedies that school districts have. That’s why I took the risk of opposing a powerful legislator’s bill.

These are probably not the politically correct arguments to make, but I represent all of the taxpayers and need to provide balance to what appears to be a vindictive remedy. So, I’ve provided my concerns in the Fox & Hounds piece below.

Another bill still on the Governor’s desk is my SB 656

(see MOORLACH UPDATE — Attaboy — January 22, 2018 ). SB 656 would make minor modifications to the Judicial Retirement System, Tier 2 (also known as JRS II). It is supported by more than one-half of the Superior Court Judges in California, including Judge Lance Ito, who has come up to Sacramento twice to testify on my bill’s behalf.

Orange County Superior Court Judge John Adams was the instigator of this two-year bill. CalPERS was a huge assist in writing the language. It addresses a work hardship concern for those in this pension plan and will provide the Governor either an opportunity to assist many of his appointees to the bench or to shut the door on any pension plan adjustments post his PEPRA legislation.

I’ll be on pins and needles this weekend.

Justice v. Retribution: AB 3120 Could Bankrupt Schools, Non-Profits

Senator John Moorlach

By Senator John Moorlach California State Senate, 37th District

Assembly Bill 3120 is aimed at the wrong target. I’m for justice, not retribution.

The bill by Assemblywoman Lorena Gonzalez Fletcher, D-San Diego, would increase childhood assault victims’ ability to sue both perpetrators and employers for claims that already have passed the statute of limitations. Yes, crimes committed against children are egregious, and deserve to be addressed swiftly without hesitation or disregard. I share the sentiment of the author. Something must be done.

Sexual misconduct allegations have prompted a series bills in the California Legislature, many of which I’ve supported. This legislation echoes a cry heard across the nation as the #MeToo movement exposed those who have abused positions of power to suppress the weak.

The need for justice is valid, but the vengeance unleashed when bills like this come into play negates the very issue it’s seeking to remedy. While trial attorneys may take 40-60 percent of the damages, schools and other non-profit organizations will be left with little to no resources to rebuild or repair.

That includes public schools, many of whose finances are in very bad shape. According to my analysis of California’s 940 K-12 school districts, about two thirds already suffer negative balance sheets. Even worse news will strike over the next year as, for the first time, their Comprehensive Annual Financial Reports must now include unfunded retiree medical liabilities.

For small school districts, one additional lost abuse lawsuit resulting from AB 3120 could lead to insolvency and the cancellation of those retiree benefits. Abuse victims also could receive reduced or no compensation from empty school treasuries.

Those districts that can make payouts will find it impossible to train or implement better procedures to ensure this doesn’t happen again as their budgets will be either completely drained, or greatly impacted from higher insurance premiums (if they can obtain insurance). We cannot even be certain the threat will be eliminated, as a considerable amount of time has passed and employees who perpetuated the abuse are most likely no longer to be present at the school.

We’ve seen this before. In 2002 the Legislature passed Senate Bill 1779 by state Sen. John Burton, D-San Francisco, opening up the statute of limitations retroactively for one year. Despite that, children continue to be abused and cover-ups still occur.

I’ve dedicated my public career to repairing the fiscal integrity of those municipalities I’ve served. In a time when schools are facing massive fiscal distress, I find it troubling the Legislature would even consider such a measure. This is a righteous cause, but it has the potential to devastate school districts and make obtaining insurance next to impossible.

California needs to focus on policies that prevent sexual misconduct so we don’t create more victims. This new legislation is a reactive approach to an issue that requires a proactive, preventative solution.


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MOORLACH UPDATE — DROP Reform — September 7, 2018

The city of Los Angeles is ranked #451 out of #482 cities for fiscal viability, with an unrestricted net deficit per capita of $1,628 (see

This week the Pacific Research Institute (PRI) released a disturbing but predictable study, titled “California’s Public Pension Monster Has Grown to Nearly $1 Trillion” (see

And, this week I’m enjoying quality time with my three grandchildren in Wisconsin, including my newest granddaughter, one-month-old Juliet June.


How do these all come together? Well, what are we leaving to the next generation? Massive debts. Our recently concluded study on California’s 940 school districts provided a graphic reality check of how dire things really are.

The city of Los Angeles has one of the worst balance sheets in the state. They also provide Deferred Retirement Option Plans (DROPs). This is a sad formula for fiscal disaster. Yet, PRI’s post is demanding that legislative reforms be pursued in Sacramento. Well, this Session I did provide solutions and decided to remind you in the Fox & Hounds piece below.

For more on SB 1433 see MOORLACH UPDATE — SB 1297 – COO — April 19, 2018 and MOORLACH UPDATE — The Joys of Presenting Bills — April 24, 2018.

We Still Need to Reform

Deferred Retirement Plans

By Senator John Moorlach

California State Senate, 37th District

In these waning days of the 2018 legislative session, pension reform once again was shoved into the future. That can’t last forever.

One bill I hope to bring back in an upcoming legislative session is Senate Bill 1433, concerning a clever retirement postponement gimmick called a Deferred Retirement Option Plan, or DROP, for police and firefighters. But it’s a DROP kick for taxpayers, and an expensive one.

Let me explain this scheme. In an employee’s last five years with the municipality, they receive their salary and their pension. The pension benefits are deposited into a trust where it earns an attractive rate of interest. At the conclusion of the five years, the trust distributes the final balance along with the compounded interest income.

As the Los Angeles Times reported, new Los Angeles Police Department Chief Michel Moore was given a lump sum of $1.27 million from his DROP plan by first retiring, then being rehired in his new position. “Moore said in an interview that the plan to have him retire and then return almost immediately to work was proposed by former Chief Charlie Beck and approved by Mayor Eric Garcetti.”

I fully understand the motivation and the implementation of this plan. I can see why it is used and how politically difficult it is to discontinue allowing DROP plans as a management alternative.

And I am in no way inferring that Chief Moore and others who take advantage of DROPs are abusing the system. As someone who has earned a Certified Financial Planner designation earlier in my career, I certainly would advise anyone who qualifies for a DROP to take it.

It is the system that is wrong. It needs to be fixed.

Unfortunately, SB 1433 would not affect charter cities such as Los Angeles, which have a great deal of autonomy on such matters. But it would affect what are called ’37 Act counties, short for the County Employees Retirement Law of 1937. SB 1433 would prohibit altogether such a county or district from starting a new Deferred Retirement Option Program, or a public employee in a DROP jurisdiction from now participating in one.

Let’s stop the perception of abuse. Let’s eliminate a temptation that should never have been there in the first place. The experience of DROP participants in Los Angeles between July 2008 and July 2017 is not pretty.

Five points on that from an earlier Los Angeles Times story from April 15:

1. Police and firefighters in the DROP program were nearly twice as likely to miss work for injuries, illness or paid leave.

2. Those taking disability leave while in DROP missed a combined 2.4 million hours of work for leaves and sick time, and were paid more than $220 million for the time off.

3. More than a third of police officers who entered the program, 36 percent, went out on an injury leave. At the fire department, it was 70 percent.

4. The average time off for those who took injury leaves was nearly 10 months. At least 370 missed more than a year. This comes at a very steep cost.

5. In addition to the salary and pension payments, leaves taken by DROP participants create a third cost for taxpayers. The fire department pays overtime to fill their vacant shifts. The Police Department requires other officers to cover their work.

Los Angeles is realizing that DROP plans are a mistake after costing the city an estimated $1.6 billion since 2001. Our state legislature should too. It should take a leadership role and totally discontinue allowing this unique strategy.

Sacramento needs to help local governments help themselves in addressing the pension crisis. This year would have been good. Next year, with a new governor and many new legislators, it is critical.


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MOORLACH UPDATE — Public Pension Management Concerns — March 7, 2018

This Friday the Association of California Cities – Orange County will be hosting a seminar for its members on the topic of pensions. I met with a delegation yesterday morning and enjoyed speaking alongside Marcie Frost, the CEO of CalPERS. Cities are getting serious about the topic of pensions. That’s why my office reviewed the basic financial statements of the 482 cities in California to see what the per capita unrestricted net position is.

Providing additional background, I’ve provided a lengthier piece on this critical topic in Fox & Hounds in the first piece below. It’s an important topic that I’ve been focused on, in spite of packed calendar.

As if I didn’t have enough committee assignments and hearings to attend, one held a joint hearing with a brand new subcommittee. Senate Budget and Fiscal Review Committee Subcommittee One on Education joined with the Senate Select Committee on California, Armenia and Artsakh Mutual Trade, Art and Cultural Exchange last week Wednesday.

I didn’t expect to enjoy international relations at the state level, but California has two major Armenian communities who are rightfully outraged that California’s pension systems’ portfolios are not Turkey free.

The University of California has its own pension plan and its Chief Investment Officer testified. After I provided a long series of questions, two things became very clear. The first is that the UC pension portfolio has a passive investment in international bonds, which includes holdings in Turkish paper. To extract them would convert the strategy to active management, which the plan wishes to avoid.

The second is that the Board of Regents, through an Investment Committee, oversees the pension (a simpler arrangement than that of CalPERS). The passive investment manager, Black Rock, makes presentations on occasion to this committee and those opposed to Turkey’s bonds are more than welcome to attend. That provided the key information that could reasonably be obtained as a result of this unique hearing. The drama is provided by Asbarez in the second piece below.

Setting the Record Straight on CalPERS and SB 400

Senator John Moorlach

By Senator John MoorlachCalifornia State Senate, 37th District

As California continues to grapple with pension reform, it’s important to keep the record straight on how the state got into this mess. A major reason was the pension spiking of nearly 20 years ago, specifically Senate Bill 400 of 1999, by state Sen. Deborah Ortiz, D-Sacramento, which retroactively increased pensions 50 percent for California Highway Patrol officers.

That began a stampede of similar increases across California for other peace officers, firefighters and public employees in state and local governments. The argument often was made that the benefit had to be granted or local workers would shift to more generous neighboring governments that already had goosed their pensions.

In 1999, the dot-com boom seemed to assure higher investment returns than in the past, meaning the higher payouts to retirees would not impact government budgets. Yet things did not compute that way, with state and local pension funds increasingly devouring budgets, forcing cuts in funding for schools, roads, health care and other public projects.

Despite that, Wayne Harris in the Sacramento Bee recently wrote an op-ed blaming the shortfall of pension funds on “Wall Street…not cops and firefighters,” saying alternative explanations show “California needs to invest more in mathematics instruction. When The Sacramento Bee editorial board and city officials wag their fingers of blame at firefighters, teachers, police officers and state pension systems that have yielded 7 percent returns in the long run, it’s clear there’s a fundamental misunderstanding of the numbers.”

Retroactivity is a disaster when doing math calculations, Mr. Harris.

The Bee’s sensible editorial had detailed, “Loudly sounding the alarm, the League of California Cities reported this month that most members expect pension costs to jump by at least 50 percent by 2024-25. Pension payments – now about 11 percent of general fund budgets on average – will eat up about 16 percent by then.” Twenty years ago, that number averaged just 3 percent.

Harris is systems administrator for Woodland Joint Unified School District and a member of Californians for Retirement Security, an advocacy group for public employees and retirees. He continued, “In 1999, when Senate Bill 400 was passed with strong bipartisan support, CalPERS was 137 percent funded and the state was in the midst of an economic boom.”

True enough. And it’s lamentable that no Senate Republicans – long before I became a member – opposed the bill. But in the Assembly, seven Republicans voted Nay.

Also, for the record, CalPERS’ performance the past 20 years was not 7 percent, but just 6.58 percent. As Ed Ring of the California Policy Center calculated, “It doesn’t seem like very much, but the difference between a 7.0 percent rate of return and a 6.58 percent rate of return is actually quite significant.” The 0.42 percentage-point reduction “increases the required annual contribution as a percent of payroll from 23.0 percent to 25.8 percent – and as a fully funded plan becomes unfunded … the ‘catch up’ contributions start to pile up.”

Missing years

In his op-ed, Harris then skips to the 2008-10 Great Recession. But hold on, something else happened first.

Here are CalPERS’ investment returns for those earlier years:

  • 1997: +20.10%;
  • 1998: +19.5%;
  • 1999: +12.5%;
  • 2000: +10.5%.

That looks great. Silicon Valley and other high-tech centers in California were roaring in the dot-com boom.

Then in 2000, the dot-com bust struck and, over the next two years, the NASDAQ lost 78 percent of its value. Hundreds of tech companies went bankrupt. Even Cisco Systems Inc., a company that survived and is worth more than $200 billion today, dropped 86 percent back then.

The bust tanked CalPERS investments:

  • 2001: -7.20%;
  • 2002: -6.10%;
  • 2003: +3.70%.

As early as August 2003, five years before the Great Recession struck, as the market started to recover from the dot-com bust, the Sacramento Bee reported on SB 400’s early returns in its first four years: “The measure approved that day [in 1999] will cost taxpayers at least $10 billion over 20 years, plus uncounted billions for similar increases granted later at the local level. The legislation began a wave of public employee pension increases at a time when private sector employees were seeing their own retirement benefits shrink or disappear entirely. And the bill relied on a fundamentally flawed assumption – that state employees, not the taxpayers, were entitled to the fruits of the long running boom in the stock market.”

It added that SB 400 was the “brainchild” of CalPERS itself. And, “The details were negotiated behind closed doors by representatives of Gov. Gray Davis and the state employee labor unions.” So much for open government and following the democratic wishes of Californians.

And – remember this is 2003 – “Now lawmakers and pension officials acknowledge that the benefits are costing taxpayers at least $500 million a year, part of $2.2 billion in new pension costs that have added to the state’s huge budget deficit. But that price tag will surely climb even further because of follow up legislation that has given other employees pension boosts to match those granted in 1999.”

Over the next few years the economy recovered, or seemed to, in the boom of the mid-2000s, when sub-prime mortgages were driving ridiculous increases in housing prices. Here are CalPERS’ returns:

  • 2004: +16.60%;
  • 2005: +12.30%;
  • 2006: +11.80%;
  • 2007: +19.10%.

Wall Street and CalPERS

Getting back to Harris, he continued in his piece, “Then, due to the fraud and abuse by Wall Street bankers, the worst recession since the Great Depression hit and investors across the globe watched as trillions of dollars in asset values were wiped out. CalPERS lost $69 billion in the first year; over the next two years, its funded status dropped by 40 percent.

“If it weren’t for the Great Recession, SB 400 benefits would have been funded for 138 years. That’s why it is unfair to criticize hard-working public employees and their pensions, while union critics give Wall Street a free pass.”

I’ll include CalPERS’ performance for those years:

  • 2008: -5.10%;
  • 2009: -24.00%.

That last, of course, was the killer.

But, it didn’t have to be so. If the CalPERS Chief Investment Officer would have reduced the holdings in equities before the dot-com bust, and repositioned into 8 percent paying bonds, then Harris may have a point. And if the CIO didn’t buy highly leveraged real estate, prior to the subprime meltdown, then maybe those losses would have been lower.

As Pensions & Investments reported on Dec. 28, 2009, “Behind CalPERS’ staggering real estate losses lies a strategy that took on too much risk and lacked adequate oversight. Once the fund’s star asset class, the real estate portfolio of the $201.1 billion California Public Employees’ Retirement System lost nearly half its value during the one-year period ended Sept. 30…. At the heart of the problem is a freewheeling approach that took on massive leverage, gave enormous discretion to staff and experienced poor timing with its investments.”

But, it’s easier to blame Wall Street when one is asleep at the investment wheel.

I immediately need to point out that other pension reformers and I are not blaming the employees, nor giving Wall Street a pass. I’m only pointing out that the history of what happened is essential to finding solutions now – and avoiding future disaster.

I’ve been a CPA and certified financial planner for more than three decades. And I’ve been a public official emphasizing prudent use of the public purse since I became Orange County’s treasurer-tax collector in 1995, after the county’s 1994 bankruptcy, which I had warned might happen.

Although recessions, including the Great Recession, are not predictable precisely, what is predictable is that eventually the business cycle goes down as well as up. There will be rough patches that need to be guarded against as much as possible through prudent financial management, especially when the public’s tax dollars are at stake.

As Harris noted, in 1999 CalPERS was 137 percent funded. But that was the very height of the market, something that should not have been expected to continue – and before the pension spiking. Indeed, as the market was zooming upward, none other than Federal Reserve Board Chairman Alan Greenspan on Dec. 5, 1996 warned of “irrational exuberance” which has “unduly escalated asset values.”

Harris solely blamed “the fraud and abuse by Wall Street bankers” as the reason for the Great Recession. Certainly, there was chicanery there. Although President Obama never prosecuted any of the bankers, even though he was elected in part because the president at the time of the crash was Republican George W. Bush.

But a large recession commonly doesn’t have just one cause. And economists spend a great deal of time debating the causes, including in this case. Other reasons for the 2008-10 debacle have included:

  • Government interferencein the market;
  • The 1999 repealof the Glass-Steagall banking regulation;
  • Fannie Mae and Freddie Mac providingtoo many cheap loans;
  • The Federal Reserve Board printingtoo much money;
  • The Fed not printingenough money;
  • The Iraq and Afghanistan wars costing as much as $7 trillion;
  • President Bush and the Republican Congresses of 2003-06 increasing domestic spendingfaster than any time since Lyndon Johnson’s Great Society in the 1960s;
  • Turning the balanced budgets of 1998-01 into record deficits, including those $413 billion in 2004 and $459 billion in 2008.

But, let’s get back to math lessons. If you increase the benefits of a fully-funded, defined-benefit pension plan 50 percent, retroactively, then the plan becomes two-thirds funded. And for that, we have public-employee unions to thank for an immediate and massive UAAL – unfunded actuarial accrued liabilities!

More pension reform needed

Some people have learned the lesson. Take Gray Davis. According to, he received $5 million in campaign donations from public-employee unions for his 1998 election. But in 2016, he conceded in an interview in the Los Angeles Times, “If you’re asking me, with everything I’ve learned in the last 17 years, would I have signed SB 400…. no, I would not have signed it.”

And none other than Gov. Jerry Brown, a longtime ally of public-employee unions, has called for more pension reform. He even is challenging the so-called California Rule, under which public-employee pensions supposedly never can be cut after being made in a collective bargaining agreement.

Brown argued last November in a lawsuit brief defending his limited 2012 pension reform, “For years, self-interested parties, overly generous promises whose true costs were often shrouded by flawed actuarial analyses, and failures of public leadership had caused unsustainable public pension liabilities.”

So even the governor blames the problem, not on one of the periodic recessions that hit us, but on mistakes by pension experts and public officials.

That means it’s up to today’s public officials to fix these problems. Now that we have the appropriate components of the equation, all the parties should take the remedial mathematics instruction one self-interested beneficiary of the pension recommends. And if pensions are not fixed, the public employees themselves will be most hurt from the mistakes of the late 1990s.

30th Anniversary of Sumgait Pogrom Commemorated at Calif. State Capitol

SACRAMENTO, Calif. — The 30th anniversary of the Sumgait Pogroms was commemorated Wednesday at the California State Capitol during the inaugural hearing of the Senate Select Committee on California, Armenia and Artsakh Mutual Trade, Art and Cultural Exchange.

The committee hearing entitled “California, Armenia and Artsakh Trade Agreements, Civil Rights Issues and University of California Divestiture and Budget Impacts” covered a wide array of issues of importance to the Armenian-American community and featured moving testimony by attorney and activist Anna Astvatsaturian Turcotte, updates on the establishment of a trade Memorandum of Understanding between Armenia and California, and the latest in the effort toward divestment from the Turkish Government by the University of California. The Select Committee was founded by Chairman Anthony J. Portantino (SD-25) following positive impressions he formed during a visit to Armenia and Artsakh prior to his election to the California State Senate.

In her remarks, Astvatsaturian Turcotte outlined the atrocities that Azerbaijanis committed against Armenians through her own family’s experiences. “In response to this freedom movement in Karabakh, the Armenians of Azerbaijan were slaughtered in the city of Sumgait and then Kirovabad and then in my home city of Baku,” said Turcotte. “We were completely driven out of our homes, from our streets, and from the city that we built.”

In 2012, Astvatsaturian Turcotte published her book, titled Nowhere, a Story of Exile, which she wrote at the age of 14 as her family settled in North Dakota as refugees. During her testimony, she explained how the book is based on the childhood diaries she kept as her family was fleeing Baku and during their years as refugees in Armenia.

Turcotte stressed that the massacres in Sumgait were only the beginning of this anti-Armenian and xenophobic behavior that was set forth by the Azerbaijani government. “Sumgait was a turning point and a blueprint for Azeris to begin with their government orchestrated expulsion of 400,000 Armenians from their wealth, their position of power, and from their own history within Azerbaijan,” continued Turcotte.


The activist also explained that the anti-Armenian behavior in the 1980s is being repeated today by the Azerbaijani regime against the Armenians living in Artsakh. “No one should ever forget the innocent lives lost in the most brutal, horrible ways,” she concluded, stating that the circumstances today are similar to 1988 because justice in Sumgait was never properly served.

Both Senator Portantino and Senator Scott T. Wilk (SD-21), appreciating Turcotte’s remarks, explored ways of further cooperation between Artsakh and California and questioned how diaspora Armenians could get more involved in sharing the stories similar to Anna’s.

“Yesterday, was a great day for California, Armenia and Artsakh relations and I was very proud to be a part of it. Our speakers and presenters made a passionate case for the recognition of human rights abuses and the benefits of signing a mutual trade agreement between California and Armenian. The UCLA students were particularly compelling with their passionate presentation on Divestiture. It made me excited to be in the Capitol,” commented Portantino.

Following Astvatsaturian Turcotte’s testimony, Gordon Hinkle, Vice President of the California Center (Global Operations) and Valery Mkrtoumian, Deputy Consul General of the Republic of Armenia presented the benefits of signing an MOU between California and Armenia. Hinkle provided the general benefits of MOUs and discussed California’s interest in engaging with foreign governments. In the past, Hinkle has helped lead numerous executive level trade missions to numerous cities and provinces in China.

Meanwhile, Deputy Consul Mkrtoumian explained the importance of an MOU between California and Armenia and highlighted the need for a trade office to solidify relations. He added that the IT and agricultural sectors of Armenia provide great potential for further trade and cooperation between Armenia and California.

“The strength of US-Armenia relations is based on the shared values and common vision for a secure world,” said Mkrtoumian while highlighting the different methods by which both economies could excel through an MOU. “There are more favorable business conditions now which would attract investments for US companies.”

The process of potential divestment by the University of California from the Turkish Government was first explained through testimony provided by Jagdeep Bachhner, Chief Investment Officer, Vice President of Investments at the University of California, who expressed willingness to work with students to find solutions while highlighting the interests of the UC in maintaining its financial obligations and investing in emerging markets.

When discussing efforts toward divestment from Turkey, members of the Armenian Youth Federation and co-founders of the Divest Turkey movement, Arev Hovsepian, Razmig Sarkissian, and Aram Manoukian discussed their involvement and presented a timeline of the movement that was initiated in 2014. They explained that this has been a grassroots initiative organized by students and to date, resolutions to divest have passed in every one of the nine UC campuses without any “no” votes.

Hovsepian provided an overview of the movement from its inception, ultimately leading to the passage of AB1597, which was introduced in the California State Assembly by Assemblymember Adrin Nazarian (AD-46) and which passed unanimously last June by a vote of 67-0 after the issue gained great momentum through the student movement.

“This campaign, now statewide, was originally organized by a group of just 7 college students. Our objective was clear: to push for divestment from Turkish government as a result of its increased human rights violations, limiting of the basic freedoms of speech and expression, denial and perpetuation of the Armenian Genocide, and harmful policies against Kurdish, Armenian, and Jewish minority populations,” said Hovsepian. She continued to urge that investing in the Turkish Government directly contradicts long-standing unequivocal recognition of the Armenian Genocide by the State of California.

“I was very honored to have had the opportunity to present on the importance of the UC divestment from Turkey before the first hearing of the Select Committee. I believe that our testimony made a compelling case to the CIO from the University and I felt he was being very respectful of our student perspective, going so far as to invite us to formally present in the future to the University Investment Committee Directly. We are grateful to Senator Portantino for this opportunity and we are optimistic that it will lead to a positive outcome,” commented Hovsepian.

Sarkissian added that divesting from the Turkish Government is in the best interest of the University of California and State of California in addition to the countless moral and ethical reasons that justify such a move. Sarkissian then explained the corruption in Turkey, beginning from jailed journalists, human rights abuses, arrests of Kurdish politicians, and the 2016 coup to highlight the risks of investing taxpayer dollars in Turkey.

“When we started this movement, it was to move forward from Armenian Genocide recognition. I’m so proud that the State of California recognizes the Armenian Genocide. I’m so proud that all the UC campuses recognize the Armenian Genocide and I’m also proud that I was able to earn a degree in Armenian Studies and was able to learn about the Armenian Genocide in my classes. But to say we recognize the genocide and then put money in the coffers of the Republic of Turkey is a slap in the face,” concluded Sarkissian.

Manoukian, during his remarks, expressed that students like him are not satisfied with the current status quo and demand that action be taken. He explained that it should be the obligation of a respected institution to uphold the values it so diligently shares and teaches, and investing in Turkey is the exact opposite.

Commending the student leaders for their informative presentation, Senators Portantino and John Moorlach (SD-37) suggested the student representatives attend a meeting of the subcommittee of the Board of Regents to further discuss the matter. The hearing concluded with Senators Portantino and Wilk presenting a resolution commemorating the 30th anniversary of the Sumgait Pogroms to the ANCA-Western Region Chair Nora Hovsepian and the Executive Director of the Armenian Assembly of America Mihran Toumajan. “Thank you for being here on this solemn 30th anniversary. We send our prayers and well wishes to the families of the descendants,” concluded Portantino.

This first hearing of the Select Committee on California, Armenia and Artsakh Mutual Trade, Art and Cultural Exchange was successful in providing a platform to expand on relations between the State of California and Armenia and Artsakh through trade and commerce. During the public comment portion of the hearing and in response to the panelists’ presentations and positive comments by various members of the Armenian community who attended from all parts of California, several members of the Azeri community voiced their protests against the work of the Select Committee.

Select Committee Chairman Portantino, in his concluding remarks, noted the passion in the student representatives during their presentation and remained hopeful that the appropriate steps be taken by the UCs to find a solution.

Members of the Senate Select Committee on California, Armenia and Artsakh Mutual Trade, Art and Cultural Exchange include Senators Anthony J. Portantino (Chair), Senate President Pro Tem Kevin de Leon (SD-24), Josh Newman (SD-29), and Scott Wilk.

In addition to participating in the hearing, representatives of the ANCA-WR Board and Staff spent the day in Sacramento accompanying Anna Astvatsaturian Turcotte and the student activists on visits to various legislative offices to discuss key issues of importance to the Armenian-American community.

A full video recording of the hearing can be viewed at

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MOORLACH UPDATE — Incentivizing Mediocrity — November 1, 2017

The Trump Bump continues! The Dow Jones Industrial Average has been rather moribund for years.

As you can see from the slide above, the DJIA was flat for some 2-1/2 years. Then Donald Trump was elected on November 8, 2016.

By June 30, 2017 the following year, the DJIA ended the year at 21,401.30. That’s up 3,451.93 points in one year! Or 19.23 percent!! It is up 3,513.02 since the Presidential election, for a 19.6 percent increase! Unheard of!

And the Dow is still going up! It closed at 23,405.70 on Halloween, October 31, 2017!

And, of course, everyone is a genius in a bull market. But, should government institutional money managers be compensated for what the market does? Maybe for what they generated above and beyond what would have been earned anyway (known as alpha). But, just for being there? The California Policy Center addresses this curious compensation component in the first piece below.

The second piece is an editorial submission to Fox & Hounds on the SB 1 Gas and Auto Tax increase that became effective today (see MOORLACH UPDATE — Scary Week Ahead — October 28, 2017).

Thanks, again, for making yet another “contribution” to the state of California and its Department of Transportation, which is one of the most poorly managed and performing DOTs in the nation. Instead of improving this union-run bureaucracy, the Democrats pursued the easier road of raising taxes over cutting bloat. It’s a good thing you’re generous and take a blind eye to simple things like running a government department as if it had competitors or something. And, just maybe, the Governor will give the management of Caltrans incentive bonuses, too.

In good times and in bad, California’s pension fund managers win fat bonuses

By Steven Greenhut

Sacramento — California’s top pension funds have suffered through a few cycles of bleak investment returns and plummeting funding ratios, so we can’t blame them for wanting to celebrate after what was, relatively speaking, a stellar financial year. But the manner in which they chose to celebrate was shocking. The funds gave their top officials massive bonuses, in part to assure that these officials don’t flee to higher-paying private-sector jobs.

The California State Teachers’ Association (CalSTRS) enjoyed a 13.4 percent return on its investments, while the California Public Employees’ Retirement System (CalPERS) earned returns of 11.2 percent. That’s good news, especially given that higher rates of return translate into lower pension debts ultimately borne by taxpayers.

It was especially good news for CalSTRS Chief Executive Jack Ehnes, who received a $224,682 bonus in addition to his $420,000 salary, according to a Sacramento Bee report. And it was good news, too, for CalSTRS Chief Investment Officer Christopher Ailman, who will receive a $272,678 bonus on top of his $509,000 salary. Those salaries, as you can imagine, come with great retirement plans.

The Bee noted that CalPERS’ executives did well, too, with Chief Executive Marcie Frost receiving an extra $80,190 and Chief Investment Officer Ted Eliopoulos receiving an extra $312,305 after last year’s returns were announced in September.

One might argue that it’s great to reward investment officials for bringing in banner returns that keep the pension funds and taxpayers out of hot water. But there are two problems with that argument. First, the funds gave their executives massive bonuses even when the investment returns were vastly underperforming predictions. As an example, Ehnes received a $214,500 bonus in 2015-2016 – when CalSTRS earned a piddling 1.4 percent return.

It’s yet another example of the “heads we win, tails you lose” approach to finances that CalPERS and CalSTRS have taken to an art form. Despite the seeming grotesqueness of six-figure these bonuses, they don’t mean much to taxpayers, local school agencies and school districts, or pension recipients. They are a drop in the bucket in the multibillion-dollar funds. They are illustrative mainly of the attitudes that dominate in the public-pension world.

The bigger problem is that the funds have run up massive debt that, based on more realistic rates of return, has hit $1.3 trillion dollars. Sure, the funds’ executives win huge bonuses in good years and bad ones. So do all the pension recipients. In these defined-benefit plans, California public employees are promised a pension payout based on a formula that calculates their years of service and their final three years of pay. It is guaranteed, with the only possible exception being a bankruptcy from the employing municipality.

As they work, that formula can never be reduced – even going forward. Back in 1999, when CalPERS pushed a state law that led to massive, retroactive pension increases the state, officials there promised that it wouldn’t cost taxpayers a dime. So far, it’s cost them many billions of dollars and has helped lead to service cutbacks as cities struggle to pay rapidly increasing pension costs. The pension funds blame previous financial crises for the problems – rather than their own culpability in hiking benefit levels. Whatever the case, the pensioner can’t lose. Taxpayers are on the hook for whatever the shortfall may be thanks to a variety of court decisions.

CalPERS and CalSTRS may be giddy over the latest returns, but one year of good returns doesn’t fix the deep hole created by years of poor returns and benefit increases. Even a few years of great returns can’t make up for system’s low funding rates. CalPERS, for instance, is only about 68 percent funded even after the stellar returns. That means that it has only a bit more than two-thirds of the money it needs to make good on all its promises. As of last April, CalSTRS’ funding ratio was around 64 percent.

A recent study from Stanford University’s Institute for Economic Policy Research deals only with CalPERS. As I explained for the California Policy Center, it found “that over the past 15 years, employer pension contributions have increased an incredible 400 percent.”. Pension costs have tripled since 2002 and are eating up larger shares of city budgets, thus leading to a crowding out of vital public services. City officials attended a recent CalPERS board meeting and shared their troubling stories, with one city official even raising the specter of bankruptcy.

Yet instead of dealing with these problems, the pension funds are partying like it’s 1999, when soaring investment earnings promised to usher in decades of “cost-free” benefits for the public-employee unions who control the pension funds and the Legislature. They act as if they couldn’t have seen a downturn coming. They blame the financial crash, rather than their foolhardy financial decisions. Did any executives get dinged for those decisions?

The Legislature’s best-known pension reformer, Sen. John Moorlach, R-Costa Mesa, agrees that it takes incentives to hire top officials to run the nation’s largest funds. But he attributes the latest solid performance to the market rather than the magic of fund managers. “What did (CalPERS’ chief investment officer) and team provide above and beyond the average rate of return for similar institutional pension systems?” he asked. “Just because the market is up is not something to be rewarded for. What did you do to exceed the average yield from which the taxpayers can split the difference in an appropriate manner? … Just being there doesn’t cut it.”

But “just being there” is the entire foundation of the state’s public-pension system. If you’re an executive for the funds, you get a big bonus, apparently in good years or bad. If you are a public employee, you receive a large, guaranteed pension for working a set number of years, no matter what happens in the economy at large. And if you’re a taxpayer, you’ve got to pay any and all shortfalls and endure any service cutbacks because of the selfish decisions made by pension funds and legislators. It’s your fault for being here.

The bonuses are the least of taxpayers’ worries, but they are remarkably emblematic of a system that runs for the benefit of its employees and beneficiaries – and not at all for the benefit of the California residents who pay the bills.

Steven Greenhut is contributing editor for the California Policy Center. He is Western region director for the R Street Institute. Write to him at sgreenhut.


Stealth Gas-Tax Increase Hits Today

John Moorlach

By John Moorlach

State Senator representing the 37th Senate District

Call it the Stealth Gas-Tax Increase. Today California’s gas tax increases about 12 cents a gallon to pay for the newly budgeted $5.2 billion a year in supposed road repairs which the Legislature passed and Gov. Jerry Brown signed last April.

But few motorists will notice it. That’s because every Nov. 1 the state switches to what’s called the winter blend of gas, which is about 10 cents cheaper than the summer blend mandated from April 1 to Oct. 31. The summer blend costs more because it adds refinery steps to reduce pollution during the year’s hot, smoggy months.

The usual 10-cent reduction will be erased this year by the 12-cent increase, so the resulting 2-cent increase overall will hardly be on your radar. For a 15-gallon fill-up, it’s just 30 cents.

The “seeming” increase of 2 cents a gallon will appear to be a slight incline in cost for rebuilding the state’s roads, which TRIP, a national transportation research group, ranks as the worst in the nation.

But this respite from the nation’s highest gas taxes won’t last long.

The big impact will hit next April 1, when gas prices will have risen not just the 10 cents extra for the summer blend of gas, but also for the additional 12 cents for the new gas tax. Total: 22 cents per gallon. But of course, by then people for five months will have gotten used to the new, stealthy 12-cent gas tax. So they may only “feel” like gas went up 10 cents a gallon, as it always does on April 1.

Yet the new tax will be a collision to people’s wallets. Assume this for an average California family. Both spouses work. Together, they use 40 gallons a week driving to and from work, taking the kids to and from school and soccer practice and performing various errands. So the 12-cent new stealth tax totals $4.80 a week, or about $250 a year.

But what if the family, due to high housing costs, must commute long distances to work – say from Riverside to Orange County or Los Angeles. Then the cost of the stealth tax could rise to $500 or more a year.

But that’s not all. There’s also an additional Transportation Improvement Fee, which is really a tax, just to register your jalopy, bumping this annual ritual $25 to $175 a year, but averaging about $50.

All this detoured money could have gone for healthier food, schoolbooks, a college tuition savings plan, or just recreation for a family that works too long paying all the taxes that already hit them.

And there’s no guarantee the money will actually fix the roads the family drives on. The stealth taxes could be car-jacked during a recession, as Gov. Arnold Schwarzenegger did with earlier tax hikes for transportation during the 2008-10 Great Recession. With the state’s pension crisis accelerating, I predict the new taxes will be too tempting a target for a future Legislature and governor.

Indeed, even the new taxes paid at the gas pump will not fully go to fix the roads the cars ride on. According to the Legislative Analyst, $270 million will go to the transit and intercity rail program, $44 million to commuter rail and intercity rail, $100 million to bicycle and pedestrian projects and $108 million for parks and agriculture. And train and bus ridership is declining.

Although today’s tax increase is stealthy, its effect on the personal budgets of Californians will be substantial. And the state’s national reputation for fiscal irresponsibility continues out of control. It’s time to hit the brakes!

John Moorlach, R-Costa Mesa, is a state senator representing the 37th District.

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MOORLACH UPDATE Who Runs Our Government? September 14, 2017

Many years ago, it became clear to many of us that Sacramento had two parties, the Republican Party and the Union Party. It is amazing how many bills are approved that incrementally give unions, both public and private, more and more territory over management or nonunion private sector businesses. It’s a testimony to their effectiveness, that such a small portion of the work force can control so much influence. Now that they have so much influence, that the changes they seek are no longer incremental. In fact, they are swinging for the fences and seem to be closing in on wholesale ownership of the state. They will use their power to the fullest, following the dictum of “more.” They are proving that they are “the Daddy” around the Capitol.

The most egregious example this year is AB 1250. Almost every newspaper in California has opined against this bill. Consequently, it was reported that it has become a two-year bill. Yet, we have been told that AB 1250 may come back to the Senate Floor today or tomorrow for a vote (also see MOORLACH UPDATE — AB 1250 OC Opposition — September 5, 2017 september 5, 2017 john moorlach, MOORLACH UPDATE — AB 1250 Labor Dominance — July 13, 2017  and MOORLACH UPDATE — AB 1250 Labor Dominance — July 13, 2017).

With this shadow hanging over the Legislature, I submitted one last editorial in opposition and it was published by Fox & Hounds in the piece below.

BONUS: You’re invited to an informal California Historical Landmark plaque unveiling at Crystal Cove State Park, 8471 N. Coast Highway, Laguna Beach. Come on Monday, September 18, at 2 p.m. for the private ceremony. Please RSVP with Aly John at 714-662-6050.

Orange County’s newest State Historical Landmark is the Historic District of Crystal Cove State Park (see and MOORLACH UPDATE — Numbers 1050 and 49 — January 2, 2016 january 2, 2016 john moorlach).

The park also contains an historic World War II bunker (see

As this landmark is not up on the state’s website yet, here’s a description:

1050 CRYSTAL COVE HISTORIC DISTRICT – It is a 12.3-acre coastal portion of the 2,791-acre Crystal Cove State Park. The federally listed Historic District is an enclave of 46 vintage rustic coastal cottages originally built as a seaside colony in the 1930’s & ’40’s and nestled around the mouth of Los Trancos Creek. It is one of the last remaining examples of early 20th century Southern California coastal development.

AB 1250 Would Make the Poor More Miserable

Senator John Moorlach

By Senator John MoorlachCalifornia State Senate, 37th District

As we have seen again in the aftermath of Hurricanes Harvey and Irma, Americans are the world’s most charitable people. From food banks and religious groups, to the Red Cross and Habitat for Humanity, our people help out those most in need.

I also can speak from experience as a county treasurer and supervisor that nonprofits provide crucial services to the poorest and least among us in our communities. Many of these charities are hired by local governments for their expertise, excellence and reasonable cost.

That’s why I believe Assembly Bill 1250 in its current form could cripple local county and non-profit budgets, meaning less help for those who need it most. Authored by Assemblymember Reginald Byron Jones-Sawyer Sr., D-Los Angeles, the bill prohibits a county from contracting out for services “customarily” performed by county workers unless 14 complicated requirements are met, including:

  • Contracting out must not “significantly undercut county pay rates,” meaning for unionized workers. That would defeat the whole purpose of trying to save the taxpayers’ money while providing better services.
  • “The contract does not cause the displacement of county employees,” which basically would ban outsourcing.

The analysis by the Senate Committee on Governance and Finance found the bill is “likely a de facto prohibition” on contracting out charitable services.

It’s no wonder AB 1250 is opposed by such notable charities as the California Association of Food Banks, the California Partnership to End Domestic Violence, Advent Group Ministries, the California Catholic Conference, Jewish Family Services of San Diego and United Ways of California.

One of the issues I have worked on most as a county supervisor and state senator is the homelessness crisis. This bill would significantly undercut efforts to help those without stable housing and long-term shelter. That’s why opposition also comes from the Family Health and Support Network Inc., the County Behavioral Health Directors Association of Californiaand the County Welfare Directors Association of California.

Another major issue I’ve been addressing for the last 18 years is excessive retirement benefit costs for public employees. The private sector and nonprofit communities do not provide Rolls-Royce-type defined benefit pension plans for their employees because of the high potential costs.

Now government wants to gobble up all the jobs and pay higher wages and benefits? Where is the justice in this power grab? Who runs our government? The taxpayers or public-employee union leaders?

By preventing ways for counties to deliver services to the needy more efficiently and cost-effectively, more burdens will be put on state government to solve the problems of homelessness and poverty.

That also will crimp state budgets, with critical areas getting less funding, at a time Gov. Jerry Brown and many others are warning a recession could strike – which also would add to the number of the poor and needy.

I urge my fellow senators to reject AB 1250.

John Moorlach, a Costa Mesa Republican, represents the state’s 37th Senate district. He can be contacted at senator.moorlach.


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