MOORLACH CAMPAIGN UPDATE — School District Races (#18 – #10) — October 12, 2018

This is the second of three Voter Guide editions for Orange County’s 27 school districts (for the first, see MOORLACH CAMPAIGN UPDATE — School District Races (#27 – #19) — October 11, 2018). This is the middle third of school districts based on their Unrestricted Net Deficits in the county and the state. It’s the piece below (see MOORLACH UPDATE — LAUSD vs. OC School Districts — September 18, 2018).

The first column is the ranking within the county on a per capita basis. The second column is the statewide ranking, out of 940 districts reviewed, on a per capita basis. The fourth column is the ranking of just the Unrestricted Net Position (UNP). The fifth column provides you with the population that the district serves. The sixth column is the actual UNP according to the audited Comprehensive Annual Financial Report. And the seventh column is the sum of the prior two columns, providing the actual cost per resident if they were to bring the district to a zero UNP.

Because we’re focusing on the finances, this is one opportunity for you to ask the incumbents what they’ve been doing to improve the situation. Accordingly, I’ve provided the names of the incumbents, regardless of party affiliation. One asterisk (*) signifies that the candidate is a registered Democrat. No asterisk means they are a registered Republican, and should be a safe vote. If the name is in bold, I have endorsed (which I have not done in this grouping). If in italics, they are a good vote for the position.

This group has four districts with no candidates this cycle. The blanks for areas means there are no Republican candidates.

Letters to the Editor in support of Proposition 6 and giving me a polite shout out continue to appear around the state. The second piece is from the Los Angeles Daily News. The third is from Calaveras County’s The

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Vote yes on Proposition 6:



Vote yes on Proposition 6. For years, politicians in Sacramento have been raiding existing gas-tax revenue to pay for pet projects and general fund spending — not to fix our terrible roads and infrastructure.

State Senator (and CPA) John Moorlach released a report showing that only 20 percent of existing gas tax funds go to roads, and Caltrans wastes half a billion dollars annually on extra staffing.

And as with most supplemental taxes, we can’t help but suspect this one indirectly offsets debt accumulated from unsustainable public-employee pensions.

Don’t be fooled by the misleading ballot title: “Eliminates certain road repair and transportation funding.” The Prop. 6 title should read: “Gas tax repeal initiative that sends a message to our state government: it’s time for fiscal accountability.”

— Kathy Bence, South Pasadena

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Vote Yes on 6 to Repeal an Unfair, Regressive Tax ~ Al Segalla

Copperopolis, CA…The cost of living is already too high in California, and the Gas and Car Tax hikes hurts working families that already struggle to pay bills. Estimates suggest the new increase in Gas Tax total will cost a typical family of four $779.20 or more per family, per year. This is about what a family spends on Christmas and two years of school lunches at a public school, or a year of college textbooks.

• The tax also hits business owners who rely on transporting goods, raising the cost of everything from apples to bread and everything in between.

• On Nov 1, 2017, Californians became subject to an additional tax of 12.5 cents more per gallon of gasoline (and 20 cents more for diesel), also increasing auto registration fees as much as $175 a year – striking the wallets of hard-working families across the state.
The gas tax hike will NOT fix our roads – because politicians will continue to fraudulently raid and divert gas tax funds. This latest gas tax increase contains NO GUARANTEE that even a penny will go to roads.

• For years, the Sacramento politicians have been raiding the existing Gas Tax funds to pay for their pet projects and general fund spending rather than fixing our terrible roads and infrastructure.

• By voting Yes on 6, you send a message to the Sacramento politicians that Californians want raids of our existing gas tax funds stopped immediately.

• Prop 69 did not end the raids of existing gas tax funds and allows the governor to spend gas tax money to fund budget shortfalls.

State Senator John Moorlach – a CPA – released a stunning report showing that only 20% of existing gas tax goes to roads and Caltrans wastes half a billion dollars annually on extra staffing.

• A 2016 study by the Reason Foundation shows that California spends 2.5x national average on roads.

• All the road projects that the politicians are claiming are being paid for by this most recent Gas Tax could be paid for if the politicians used the existing gas tax revenue for doing what it was supposed to do – repairing California’s infrastructure.

• Nobody is denying that California’s roads are crumbling, but there’s plenty of money to repair the roads if the politicians put 100% of the existing gas tax revenue into doing the right thing.

But that’s not all, our present state budget surplus provides plenty of money to fix our roads.

Please vote Yes on Prop 6.

Al Segalla
Calaveras County Taxpayers Association

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MOORLACH UPDATE — Selected to Serve — May 28, 2018

Allow me to wish you a solemn Memorial Day as we show respect for those who died in active military service for our nation. Many volunteered to serve, but many were also selected to serve through the military draft.

Speaking of serving, many ask, “How do I put up with it in Sacramento?” I tell them that it is not easy to be in the super-minority. But, there are sources of encouragement. One is the potential of this year’s election efforts. The other is the Howard Jarvis Taxpayers Association.

So, after this year’s election skirmishes, what may the State Senate look like in December of this year? The odd numbered Senate Districts are not up this cycle, so expect to see Senators Gaines (SD 1), myself (SD 37), Morrell (SD 23), and Wilk (SD 21) there.

However, Sen. Gaines is running for the State Board of Equalization. If he is successful, we will need to replace him with a Republican. But, we only start with a definite three and possible four, if Sen. Gaines is not successful in his quest.

Let’s hope that Senators Bates (SD 36), Nguyen (SD 34), Nielsen (SD 4), Stone (SD 28), and Vidak (SD 14) are re-elected. That brings us to eight or nine.

We need to replace Sen. Anderson (SD 38), Berryhill (SD 8), Cannella (SD 12), and Fuller (SD 16), with Republicans, so good candidates are being supported by the Republican Caucus. This should bring us to twelve or thirteen.

If Sen. Gaines is successful and he is replaced by a Republican in a special election, we are at a definite thirteen.

If we can get Rita Topalian to fill Democratic Senator Tony Mendoza’s vacant seat (SD 32), then we are at the magic fourteen level. This means the Democrats will not have a two-thirds stronghold in the State Senate.

If the recall of Senator Newman (SD 29) is successful and we replace him with one of the Republican candidates, we’re at fifteen!

If Senator Galgiani (SD 5), who is running for another District seat on the State Board of Equalization, is successful, then we have a chance to replace her with a Republican. That gets the Republican Senate Caucus up to sixteen!

I would still be in the Minority Party, but not the Super-Minority, which provides for a more sporting chance to stop crazy bills and an opportunity for Republican bills to move forward by persuading two or more Democrats to vote with us. There is reason to feel some optimism and hope.

In the meantime, there are organizations in the Capital that provide moral support to me and my Republican colleagues. One of them is the Howard Jarvis Taxpayers Association (HJTA). This organization is worthy of your financial support, as it is one of the foremost nonprofits working on behalf of the taxpayers.

HJTA President Jon Coupal is a strong voice. He was kind to me in one of his weekly Sunday columns earlier this year (see MOORLACH UPDATE — Attaboy — January 22, 2018).

His most current column focuses on the lack of transparency in Sacramento when it comes to your tax dollars. For background, see MOORLACH UPDATE — Worked So Hard — May 19, 2018, MOORLACH UPDATE — The Joys of Presenting Bills — April 24, 2018 and MOORLACH UPDATE — SB 1297 – COO — April 19, 2018.

Jon Coupal’s piece was published in the LA Daily News, The Sun, and the OC Register and is provided below.

At the end of last week, I was selected to serve again as one of the two Republican Senators on the annual Budget Conference Committee. I will be serving alongside Sen. Jim Nielsen (also see MOORLACH UPDATE — Budget Conference Committee — June 8, 2017). The Budget Conference Committee reconciles the Assembly and Senate Budget recommendations for approval by both Chambers and the Governor. This is a significant honor, but also a major time commitment. Consequently, I will be extremely busy between now and June 15th.


Progressives love transparency except when they don’t


We’ve all heard of “situational ethics.” This column is about “situational transparency,” a phenomenon among progressives who love transparency in matters of public policy, except when they hate it.

Let’s review the areas in which progressives support transparency: the salaries of CEOs, the race and gender of employees, the details of business supply chains” and, of course, extensive disclosures about campaign finance.

But in other matters, particularly relating to their own interests, the same people are flatly opposed to transparency. For example, progressives claim to desire disclosure of who pays for political advertising, and they backed legislation such as Assembly Bill 249, a burdensome mandate to add confusing content to political ads. It was so burdensome, in fact, that an exception was made for ads paid for by labor unions, major backers of progressive politicians.

Progressives also campaigned hard against Proposition 54, the California Legislative Transparency Act, which voters approved despite liberals’ complaints. Prop. 54 requires that bills must be posted online in their final form for at least three days before lawmakers can cast a final vote on them. Proposition 54, which the voters approved in 2016, also requires the Legislature to make video recordings of all public hearings, and it allows any member of the public to record a legislative hearing.

Another example of how those in power resist having the public see what they are doing involves public employee compensation. For years, government agencies and departments have resisted disclosing how much their managers and employees are paid in both salaries and benefits. The Howard Jarvis Taxpayers Association had to file numerous lawsuits — or threaten lawsuits — to get local governments to disgorge the data. After prevailing in all those actions, compensation data is now available for public inspections — a healthy development in countering government entities that constantly plead poverty and demand higher taxes.

Perhaps the most glaring example of progressive hypocrisy when it comes to transparency is revealed by the defeat of Senate Bill 1074, authored by state Sen. John Moorlach, R-Costa Mesa, which would have provided California’s millions of motorists with valuable information about the price of gasoline. Titled “Motor Vehicle Fuel: Disclosure of Government-Imposed Costs,” SB1074 would have required gas stations to post near each pump a breakdown of all the different costs that go into the price per gallon of fuel, such as federal, state and local taxes and costs associated with environmental rules and regulations, including California’s hidden tax, the permit fees that fuel producers have to pay under the state’s infamous cap-and-trade law.

As you might expect, the progressives who control the state Legislature refused to provide the public with the true cost of government when it comes to driving our cars. The same folks who rail against the oil companies and who are quick to allege deep conspiracies about corporate profits have no interest in informing the public about government-imposed costs that dwarf the oil companies’ profit margin on a gallon of gas.

We can also expect them to oppose the government transparency that would be required by an initiative that recently met the signature requirement to qualify for the November ballot.

The Tax Fairness, Transparency and Accountability Act of 2018 would require that any law creating a new, increased or extended tax must contain “a specific and legally binding and enforceable limitation on how the revenue from the tax can be spent.”

Even if the tax revenue will be spent for “unrestricted general revenue purposes,” the law must say so.

California politicians often complain about “ballot-box budgeting” and requirements for voter approval before taxes can be raised. But progressives have earned a reputation for hiding the cost of their policies, and voters can’t be blamed for playing an aggressive defense.

Jon Coupal is president of the Howard Jarvis Taxpayers Association.

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MOORLACH UPDATE — 2017 State Per Capita UNPs — April 2, 2018

My efforts to provide a metric for all of California’s 482 cities is getting statewide recognition and now national attention (see Senator John Moorlach Ranks California’s 482 Cities for Financial Soundness). Truth in Accounting provides a very kind compliment in the first piece below. We are apparently kindred spirits.

I recently provided the rankings for all of California’s 58 counties in (MOORLACH UPDATE — San Francisco County #56/57 — March 20, 2018 ). I am proud that Orange County moved from #46 to #28. It indicates, to me anyway, that the hard work I put in overseeing Orange County’s budget during the Great Recession and pursuing pension and retiree medical reforms really benefited our county’s residents.

This week, the State Controller released California’s June 30, 2017, Comprehensive Annual Financial Report (CAFR). Consequently, we now have the rankings of the 50 states for you. California is not the last to release its CAFR. Five other states still need to issue theirs. But, I’m releasing the results anyway, using their 2016 CAFRs for those five delinquents. Should there be any major movements after the last five 2017 CAFRs are released, I’ll let you know. It’s the second piece below.

A few observations. The first is a confession. Last year we made an error and used the CAFR for New York City, which encompasses five counties, not New York State. As a result, New York moved up 10 places in my rankings for Unrestricted Net Position (UNP). The second is that two states are going in the wrong direction, Rhode Island and Maryland, dropping two places each, respectively to #43 and #44. The third is that this movement allowed California to move up one position, to #42.

When I was elected to the California Senate in 2015, the June 30, 2014 CAFR for California was #46. The next year, in 2016, California moved to #44. It advanced to #43 in 2017. All to say, since I’ve arrived, California has moved up every year, as it is #42 in 2018. You’re welcome.

Now that I’ve just pulled a classic political stunt by taking credit for California’s advancement, I must state that enacting the recent Government Accounting Standards Board (GASB) requirement to put pension liabilities on the balance sheet has revealed the seriousness of this crisis. When the retiree medical liabilities are added to next year’s CAFRs, California will have an Unrestricted Net Deficit of a quarter-trillion dollars! Stay tuned for next year’s state UNP analysis.

Other observations should tell the Department of Finance in Sacramento to take a hard look at Tennessee and see what they’re doing, as it moved up four places, to #5, as one of only 10 states with a positive UNP. Oregon also moved up four places, to #16. I would give it to the fact that it has a Chief Operating Officer overseeing its various departments (see California’s two biggest competitors, Florida and Texas, continue to hold strong positions, respectively at #15 and #23.

The big story is Colorado, at #33. It dropped 12 places! Maybe legalizing cannabis is not the financial Rocky Mountain High that everyone hoped it would be? But, the real states to watch are New Jersey, Connecticut, Illinois, Massachusetts, and Kentucky. The Urestricted Net Deficits for these five states are in the stratosphere.

There is a big spread between #41, Delaware, and #42, California. So, I don’t expect another move up in positions for our state in some time. Let’s hope that Governor Brown can hold onto #42 when the June 30, 2018, CAFR, the last full year of his term, is released next March or April. But, with $91.5 billion in retiree medical liabilities currently off of the books (a decision made by State Controller Betty Yee), it’s hard for this licensed, but inactive, CPA and CFP to be optimistic (see MOORLACH UPDATE — Better Shape — February 1, 2018).

With these unpleasant metrics, wouldn’t you think that states like California and New Jersey would shed programs, instead of adding them? Do they need to add another department, thus creating the need to hire more employees? And being encumbered with the need to provide generous salaries and defined benefit pension plans? How ironic, when a defined benefit retirement plan exceeds that of CalSavers by a long shot.

Then there are the initial costs of starting up an investment scheme that will eventually be funded from the expense ratio of the funds under management? Also, with no wherewithal for the state to provide self-insurance, is California risking having the liability exposure that may come when plan participants cry foul because actual net investment returns do not match that of industry benchmarks?

This is what I’m sayin’ in the third piece below from the Los Angeles Daily News, the OC Register, and the San Gabriel Valley Tribune (MOORLACH UPDATE — CalSaver Imposition — March 26, 2018).

This state lawmaker gets government finance

Sheila Weinberg

Kudos to California state Sen. John Moorlach for his understanding of government finances and how to determine the true fiscal condition of a government. As a certified public accountant and financial planner, he used his experience and expertise to rank California’s 482 cities according to their financial soundness.

I am very impressed to see the senator use “unrestricted net position” as his measurement. He found 216 California cities had a positive unrestricted net position, or the amount of funds available to pay for future government operations. The senator found 264 cities had a negative net position, which represents the amount of bills (liabilities) that elected officials have pushed onto future taxpayers.

Moorlach’s study correctly notes that retiree health care liabilities are not included in the unrestricted net position, so the number is overstated. Fortunately, government financial reports for fiscal years after June 15, 2018, will be required to report these liabilities.

I urge every taxpayer and elected official across the country to read Moorlach’s report, especially the second page, where he provides readers with a step-by-step guide on how to find a government’s unrestricted net position.

Since 2009, Truth in Accounting has used unrestricted net position as the basis* for calculating our “money needed to pay bills” measure in each state, which is then used to calculate a state or local government’s Taxpayer BurdenTM. The ranking of each state’s Taxpayer Burden can be found in our Financial State of the States report. In January, we issued our latest Financial State of the Cities report using the same methodology to calculate the money needed to pay bills and Taxpayer Burden for the 75 most populated U.S. cities.

To see where your state and city ranks, along with detailed financial information, go to Truth in Accounting’s sister website

If you don’t see your local government, then I urge you to follow these steps so you can find your government’s unrestricted net position:

  • Google your government’s name and “comprehensive annual financial report”
  • Find the “statement of net position” (usually somewhere around pg. 35 on the PDF document)
  • Look for the “net position” section
  • Find the row for “unrestricted”

Remember, a negative number is not good.

*When necessary, we have adjusted for each government’s unreported pension and retiree health care liabilities.

Rank State Population UNP Per Capita Year 2016
1 Alaska 739,795 $ 14,558,125,000 $ 19,679 1
2 North Dakota 755,393 $ 5,989,501,438 $ 7,929 3
3 Wyoming 579,315 $ 4,518,975,575 $ 7,801 2
4 Idaho 1,716,943 $ 1,146,468,000 $ 668 4
5 Tennessee 6,715,984 $ 2,736,079,000 $ 407 9
6 Oklahoma 3,930,864 $ 1,484,206,000 $ 378 8
7 South Dakota 869,666 $ 267,296,000 $ 307 7
8 Nebraska 1,920,076 $ 550,525,000 $ 287 5
9 Utah 3,101,833 $ 819,880,000 $ 264 6
10 North Carolina 10,273,419 $ 1,822,821,000 $ 177 10
11 New Mexico 2,088,070 $ (326,978,000) $ (157) 2016 11
12 Iowa 3,145,711 $ (999,603,000) $ (318) 12
13 Washington 7,405,743 $ (3,376,575,000) $ (456) 13
14 Georgia 10,429,379 $ (5,210,957,000) $ (500) 16
15 Florida 20,984,400 $ (12,401,193,000) $ (591) 17
16 Oregon 4,142,776 $ (2,482,259,000) $ (599) 20
17 Nevada 2,998,039 $ (1,888,144,000) $ (630) 2016 18
18 Virginia 8,470,020 $ (5,344,284,000) $ (631) 19
19 South Carolina 5,024,369 $ (3,497,642,000) $ (696) 14
20 Arkansas 3,004,279 $ (2,160,882,000) $ (719) 15
21 Arizona 7,016,270 $ (5,341,848,000) $ (761) 24
22 Indiana 6,666,818 $ (5,177,896,000) $ (777) 2016 25
23 Texas 28,304,596 $ (25,170,339,000) $ (889) 22
24 Minnesota 5,576,606 $ (5,029,153,000) $ (902) 28
25 Ohio 11,658,609 $ (10,571,925,000) $ (907) 26
26 Montana 1,050,493 $ (971,795,000) $ (925) 23
27 Missouri 6,113,532 $ (5,787,207,000) $ (947) 27
28 Michigan 9,962,311 $ (9,848,197,000) $ (989) 30
29 Kansas 2,913,123 $ (3,205,914,000) $ (1,101) 29
30 New Hampshire 1,342,795 $ (1,683,141,000) $ (1,253) 31
31 Maine 1,335,907 $ (1,885,023,000) $ (1,411) 32
32 Wisconsin 5,795,483 $ (8,361,432,000) $ (1,443) 34
33 Colorado 5,607,154 $ (8,359,538,000) $ (1,491) 21
34 Alabama 4,874,747 $ (7,578,278,000) $ (1,555) 2016 35
35 Pennsylvania 12,805,537 $ (21,275,848,000) $ (1,661) 33
36 Mississippi 2,984,100 $ (6,058,425,000) $ (2,030) 36
37 New York 19,849,399 $ (45,599,000,000) $ (2,297) 47
38 West Virginia 1,815,857 $ (4,455,964,000) $ (2,454) 37
39 Louisiana 4,684,333 $ (11,949,852,000) $ (2,551) 38
40 Vermont 623,657 $ (2,263,168,022) $ (3,629) 40
41 Delaware 961,939 $ (3,622,572,000) $ (3,766) 39
42 California 39,536,653 $(169,499,683,000) $ (4,287) 43
43 Rhode Island 1,059,639 $ (4,581,514,000) $ (4,324) 41
44 Maryland 6,052,177 $ (27,010,946,000) $ (4,463) 42
45 Hawaii 1,427,538 $ (7,996,567,000) $ (5,602) 44
46 Kentucky 4,454,189 $ (40,157,358,000) $ (9,016) 45
47 Massachusetts 6,859,819 $ (63,992,915,000) $ (9,329) 46
48 Illinois 12,802,023 $(161,239,415,000) $ (12,595) 48
49 Connecticut 3,588,184 $ (52,826,131,000) $ (14,722) 49
50 New Jersey 9,005,644 $(136,955,085,569) $ (15,208) 2016 50


John Chiang joins race to

California insolvency with



Before California and other states start new programs, wouldn’t it be wise if they first got their own financial houses in order? A case in point is the new California program originally called Secure Choice, even though it was neither secure nor a choice, but now is called CalSavers. It’s a state program to get low- and middle-income Californians to invest in a state-run defined contribution pension plan.

Similar programs have been enacted in the states of Illinois, New Jersey, Maryland, Oregon and Washington. And the list may be growing. According to a recent Associated Press report on the plans, “New York is among a growing number of states considering legislation to create government-sponsored payroll-deduction retirement programs for small businesses.”

The reason behind the programs, the article adds, is because “financial planners say” the plans “could be a relatively painless way to help Americans reverse a dismal record of saving for their golden years.”

State Treasurer John Chiang, in his March 17 op-ed, “CalSavers gives Californians a chance at a more secure retirement,” defended the program as part of his bid to become governor. This claim is not exactly true. It only provides a component of one’s total retirement planning efforts. But, why should the state insert itself?

As the only certified public accountant in the state Legislature and a financial planner, I can tell you that withholding programs can be provided for employees without state government involvement.

For fun, let’s look at the finances of all the state governments involved so far. Each one has a significant per capita unrestricted net deficit: New Jersey ($15,208), Illinois ($12,525), Maryland ($4,463), California ($4,263), New York ($2,297), Oregon ($599), Washington ($456).

It’s a classic case of, “Do as I say, not as I do.” Would you want a DMV-type department managing a portion of your nest egg? And let’s hope your funds are not used to prop up these fiscally challenged states.

Chiang attacked an earlier op-ed by Jon Coupal, the president of the Howard Jarvis Taxpayers Association, because “Coupal erroneously asserts that the program poses a financial burden to taxpayers. The fact is CalSavers is a voluntary savings plan for private-sector California workers that incurs no cost or liability to taxpayers or participating employers — none!”

This is also not exactly true. The initial subsidization of this program will be paid for out of the investment earnings of the participants. Translated: expect lower net yields.

Chiang also mentions CalSavers “is being hailed as the most significant expansion of retirement security since the passage of Social Security in 1935.” But the 2017 Annual Report of the Social Security Board of Trustees calculated the fund suffers a whopping $12.5 trillion unfunded liability — that’s with a “t.” Explain how this was a bragging point.

Participants can also expect social investing strategies once CalSavers gets up and going. Expect severe restrictions on profitable investments, as was already seen with CalPERS, which lost $3 billion since its divested from tobacco stocks in 2000. Then it divested from coal companies, which are booming. Now Chiang is trying to get CalPERS to divest from gun companies.

California workers already enjoy many options to invest on their own. If Chiang wants to help our citizens plan better for retirement, why did he oppose President Trump’s middle-class tax cuts, which leave people more to invest for their futures? And will he sign the initiative petition to repeal last year’s gas-tax increase, which annually robs $5.5 billion from Californians, money they could have put into retirement plans?

Life is not simple or easy. You need to impose self-discipline and save for your own retirement. And you need to manage your personal finances in a smart manner, based on your particular needs and constraints.

An expensive, government-run savings plan does not fit in this strategy. Sacramento, save us the shallow platitudes and stay out of our pockets, please.

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

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MOORLACH UPDATE — CalPERS Exit Strategies — November 18, 2017

The union-majority controlled Board of the California Public Employee Retirement System (CalPERS) still doesn’t get it. And the LA Daily News and OC Register editorial piece below provides the proof.

After reading the piece, you’ll understand why I authored SB 681 this past year (see It is a two-year bill, so expect some action on January 8, 2018, the first meeting of the Senate Public Employment and Retirement Committee for the 2018 Session. Also see MOORLACH UPDATE — Pursuing Reforms — August 11, 2017.

CalPERS is a multi-employer administrator for defined benefit pension plan sponsors. If a plan sponsor wishes to leave, the formula should be very simple. Calculate the contributions that CalPERS actuaries requested and were paid into the system, then determine the net compounded earnings of those funds placed into the plan, and subtract what has been paid out for benefits to retirees. Simple math. Give the remaining balance to the city (plan sponsor) as that city is required to run the retirement plan, which can be done with another vendor or on their own. The city is required to pay the retirement benefits and CalPERS is absolved of anymore responsibilities.

The terminating agency plan is proof that CalPERS has been committing a form of fraud by undercharging plan sponsors (see MOORLACH UPDATE — What Pension Crisis? — September 27, 2017 ).

To start the process of authoring additional pension reform bills for next year, I recently wrote two letters to two CalPERS Board members. What happened next is mentioned in the piece below and can also be found in MOORLACH UPDATE — OC’s Newest Landmark Plaque — September 20, 2017.

It’s good to see the media keeping a diligent eye on CalPERS and its suspicious and inappropriate strategies when dealing with its “customers.” The CalPERS Board must be realizing that the city of Loyalton’s exit strategy could gain traction. And, like a person that is overly possessive, it can’t seem to let go of something that isn’t even theirs.

BONUS: “The Day the War Hit the Shore” Veterans Day afternoon ceremony last Saturday was an amazing time to informally discuss a tragic and little known event, which occurred in the 37th District back in 1943, with members of the surviving family present. It was held at the clubhouse of Huntington by the Sea, off Newland, just a block from the ocean.

Thanks go to Chris Epting for his outstanding historical scholarship and presentation on this unique summer Sunday afternoon when a P-38 pilot had to eject from his two-engine plane when one of the engines caught fire. The P-38 was headed for the ocean, but the second engine was still operating its propeller, so the unmanned aircraft turned back to shore near PCH and Newland Street. The plane hit a crowded beach and exploded, probably fully fueled, injured 40 Orange Countians and killed four children.

The Barrego and Silva families of Garden Grove, enjoying a picnic on the beach with their families, lost two children each that day and would never be the same.

Daughter Vera Silva did not go to the beach that day. As a 10-year-old, she stayed home to dutifully care for her blind grandmother. For her surviving brothers, who were severely burned, she would be their caretakers, too. They would die at a young age. Her parents would pass away at young ages, too, perhaps due to the tremendous grief.

Vera’s daughter, Maria Young, is a 2016 Daily Pilot Hall of Fame recipient (see When Maria wanted to hold her wedding on the beach, near the spot of the incident, Vera had to explain her reservations and finally shared the family story. It was so painful, she had kept it from Maria for some two decades.

G. Pat Macha was in attendance and provided additional information on the P-38 activity in the area during World War II. His aircraft crash site research can be found at

Chase Wickersham, my appointee to the Orange County Veterans Advisory Council, joined us. He was part of the team that established the Tierney Center for Veteran Services at Goodwill Orange County. Dolf Keller would be very proud of Chase (see MOORLACH UPDATE — Veterans Day — November 10, 2017).

Huntington Beach Mayor Barbara Delgleize also spoke and provided insights as to mounting the commemorative brass plaque in a prominent location, such as the Huntington Beach Library.

Thanks to all who attended, as we enjoyed a “Huell Howser” historical jam session.


Losing your pension?

CalPERS wants to shift blame

to cities

CalPERS headquarters at Lincoln Plaza in Sacramento.

By Steven Greenhut

The nation’s largest state pension fund, the California Public Employees’ Retirement System, still is reeling from bruising publicity it received after it slashed the pensions for workers in the tiny Sierra Nevada town of Loyalton (population 862) and in the now-defunct East San Gabriel Valley Human Services Consortium.

Public employees across California understandably were spooked after reading news stories about the plight of Loyalton’s four retirees after the town exited the retirement system in 2013. And nearly 200 retirees in that San Gabriel consortium are losing as much as 63 percent of their retirement pay because the consortium, known as LA Works, closed its doors and stopped making payments.

But leave it to CalPERS to view that state of affairs as a public-relations matter rather than a CalPERS-created policy problem. At the pension fund’s recent meeting, its board proposed finding a sponsor for a state bill that would require agencies to notify their employees when they intend to exit the pension fund. The goal is to shift the blame to cities and districts that rely on CalPERS to administer their pension benefits.

The proposed legislation shows that CalPERS “would like someone else to deliver the bad news when local governments quit paying their bills and put a retiree’s pension in jeopardy,” reported the Sacramento Bee. CalPERS is capable of keeping pensioners posted, but there’s nothing wrong with giving retirees additional information given the months of uncertainty they endured.

But the CalPERS proposal doesn’t go nearly far enough. Any new law ought to include myriad other disclosures, too. Namely, retirees — and maybe taxpayers, too — ought to be informed about the size of the state’s pension debt and the frighteningly low rate at which CalPERS is funded. They ought to be told why public services are gutted and local taxes keep going up.

But the fund probably wouldn’t be too thrilled about those suggestions, just as it rejected recent efforts by Sen. John Moorlach, R-Costa Mesa, to force it to provide cities with more actuarial calculations. CalPERS said no even though hard-pressed city officials came to a Sacramento hearing to plead with them to provide the data.

Loyalton voted to exit CalPERS because the town couldn’t afford the payments. LA Works exited because it shut its doors in 2014. When they left, CalPERS slammed them with massive bills. Loyalton was assessed a $1.66 million “termination fee” it couldn’t possibly afford given its $1 million annual budget.

Apparently, CalPERS wants retirees to believe that it’s the local agencies’ fault for leaving the fund, without mentioning that it’s the pension fund that put them in their current bind. The issue revolves around some eyes-glaze-over accounting known as the Terminated Agency Pool, but the details say much about how CalPERS operates (hint: for the benefit of union members).

In the private sector, most employees receive 401(k) plans. The employer deducts money, sometimes makes a contribution. The money is invested in a mutual fund. If returns are good, the employee benefits and vice versa. In the public sector, employees receive a “defined benefit.” They are guaranteed a payout based on a formula, regardless of how well the pension fund’s investments may perform. The “unfunded liability” is the difference between what’s promised and the money available to pay for those promises. Taxpayers are on the hook for that shortfall.

The funds invest the dollars and predict a rate of return. Higher returns mask the size of the liabilities and enable governments to ramp up benefit levels — or at least avoid trying to trim them. The fund assumes a hefty rate of return of 7 percent (down from 7.5 percent). But when an agency wants to leave, CalPERS sticks them in a separate fund for terminated agencies, where it only predicts a rate of return of around 2 percent. Local agencies get a bill for the difference.

In other words, the union-controlled fund is bullish when taxpayers’ money is at risk. The fund assumes high rates, which keeps the gravy train chugging along. If there’s a shortfall, they increase cities’ fees or take more money from the state general fund. But when agencies leave, CalPERS no longer has a way to make up for any future losses. So when its own money is on the line, it becomes miserly and assumes a piddling rate of return.

Everything CalPERS does is carefully audited, so it knows how much a local agency has paid into the fund, how much it earned and how much it paid out. CalPERS can calculate a balance and work out a plan with the agency to pay the difference. Instead, CalPERS “negotiates” with these agencies in a way that’s more reflective of negotiations between a mugger and victim. The fund does so because it fears other agencies will head for the exits, too.

Can someone sponsor a bill that discloses those facts to retirees and the public?

Steven Greenhut is Western region director for the R Street Institute. He was a Register editorial writer from 1998-2009. Write to him at sgreenhut.

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MOORLACH UPDATE — Pursuing Reforms — August 11, 2017

The OC Register’s lead editorial addresses a concern that spawned my bill, Senate Bill 247, to address unnecessary and over burdensome occupational licensing. It was kind of them to give this effort a shout out in the first piece below. It also appears in the San Bernardino Sun and the Los Angeles Daily News. For previous UPDATEs on this topic, in date order, see:

MOORLACH UPDATE — SB 247 — April 20, 2017 april 20, 2017 john moorlach

MOORLACH UPDATE — There Ought Not Be A Law — April 23, 2017 april 23, 2017 john moorlach

MOORLACH UPDATE — Snubbing — May 10, 2017 may 10, 2017 john moorlach

MOORLACH UPDATE — Legislative Efforts — June 29, 2017 june 29, 2017 john moorlach

The OC Register online also provides another perspective on the public employee defined benefit pension plan crisis. It is also in The Press-Enterprise. The challenge? Will there be reform?

Reform? Let me show you reform. And just from this year alone with a recap of my office’s efforts to address what I believe is the top concern of municipalities in this state. You can see all my bill material at my website, including background, white papers, newspaper articles, videos and hearing.

SB 32 — PEPRA II — The attempt to make the reforms that Gov. Brown could not get accomplished with PEPRA was killed by the Senate Public Employment and Retirement Committee (see MOORLACH UPDATE — PEPRA 2 With SB 32 — January 15, 2017 january 15, 2017 john moorlach).

SB 371 — Bargaining Conflicts of Interest — This attempt to prohibit those who benefit from the very bargaining unit agreements that they are negotiating was killed by the Senate Public Employment and Retirement Committee (see MOORLACH UPDATE — Snubbing — May 10, 2017 may 10, 2017 john moorlach).

SB 671 — Pension Pre-Payment Modifications — This attempt cleared up language in the code and broadened pension plan prepayment parameters for all municipal employers. This bill made it to the Governor’s desk and was signed into law (see MOORLACH UPDATE — SB 671/Prepayment — May 14, 2017 may 14, 2017 john moorlach and MOORLACH UPDATE — Bad News/Good News — July 18, 2017 july 18, 2017 john moorlach).

SB 681 — CalPERS exiting reform — This attempts to provide a fair withdrawal process that make for a clean break from a service provider (versus an onerous mother who can’t seem to let go) (see MOORLACH UPDATE — SB 861 and SCA 8 — March 10, 2017 march 10, 2017 john moorlach, MOORLACH UPDATE — PACE and HERO — April 30, 2017 april 30, 2017 john moorlach and MOORLACH UPDATE — 37th in the 37th — August 9, 2017 august 9, 2017 john moorlach — the Letter to the Editor provided in this UPDATE was printed in today’s LA Times). I elected to make this a two-year bill.

SCA 1 — Secure Choice Nonsubsidy — With the successful passage of SB 1234 (De Leon – 2016) (see MOORLACH UPDATE — SB 1234 — August 26, 2016 august 26, 2016 john moorlach) this effort attempted to prohibit taxpayer dollars from underwriting this private sector retirement proposal managed by a California bureaucracy (also see MOORLACH UPDATE — SCA 1 Warranty — March 7, 2017 march 7, 2017 john moorlach, MOORLACH UPDATE — SCA 1 — March 6, 2017 march 6, 2017 john moorlach, and MOORLACH UPDATE — Legislative Efforts — June 29, 2017 june 29, 2017 john moorlach). The federal Department of Treasury recently announced the elimination of the “myRA” program because of low public-interest and high fiscal costs. The Secure Choice program would be impacted by recent legislation passed by Congress and signed by the President that eliminates federal protections of such a program, further exposing California taxpayers.

SCA 8 — Abolish the “California Rule” — This attempt is discussed in the piece below. We are waiting on the California Supreme Court’s ruling on the Marin Case. Since the ruling has not been released, I have made this a two-year bill (see MOORLACH UPDATE — SB 861 and SCA 8 — March 10, 2017 march 10, 2017 john moorlach).

SCA 10 — Voter Approval for Pension Debt — This attempts to replicate Orange County’s Measure J (2008), but on a statewide basis. Simply, if a pension enhancement is negotiated that increases the unfunded liability, then the voters must approve it first to become effective (for a sampling of this pension reform measure, see MOORLACH UPDATE — Happy Birthday! — September 30, 2013 september 30, 2013 john moorlach, MOORLACH UPDATE — Alternative Investments — November 17, 2013 november 17, 2013 john moorlach, MOORLACH UPDATE — Social Host Ordinance — November 6, 2013 november 6, 2013 john moorlach, and MOORLACH UPDATE — Conditions of Children — October 24, 2013 october 24, 2013 john moorlach). We have also made this a two-year bill.

All to say, I am not afraid to pursue pension reforms. I’m sure my colleagues on the other side of the aisle believe that reforms should be discussed and approved. I just believe that the public employee unions, who finance their campaigns, are holding the majority of these legislators back. When the public employee unions realize that we are trying to make defined benefit pension plans sustainable, then they have the opportunity to be a part of the solution.

However, just like public safety officers in Arizona, I get the sense the old guard is soon to be replaced by a younger generation of public servants who want to be more mobile and have more control over their retirement decisions. Hopefully that moment isn’t far off.



Occupational licensing reform a bipartisan goal

Something the Trump and Obama administrations agree on: occupational licensing laws need to be reformed.

In a speech delivered July 21, U.S. Secretary of Labor Alexander Acosta called on state legislators to reform occupational licensing laws which, he argues, are too often used “to limit competition, bar entry, or create a privileged class.”

He’s right. While upwards of one-in-four American workers require a government license to earn a living, there are often vast discrepancies between states regarding which particular jobs require licensing. According to a 2012 report from the Institute for Justice, of 102 low- and moderate-income occupations assessed, only 15 were licensed in 40 or more states. Whereas Louisiana licensed 71 of the studied occupations, Wyoming only licensed 24. California licensed 62.

The arbitrariness of which occupations are licensed and which aren’t can make it difficult for workers to move across state lines. One particular group of workers harmed by this is military spouses, who commonly have to relocate. Approximately 35 percent of military spouses work in a field requiring a government license or certification. In a 2013 Institute for Military Veterans and Military Families survey of female military spouses, 40 percent reported problems or delays in having their licenses or certifications renewed or reissued.

There are also wide varieties in the requirements for licensing that states impose, including fees and the periods of training and education needed to get a license. As IJ points out, while 10 states required four or more months of training for manicurists, Alaska and Iowa respectively only required three or nine days.

This is often done with minimal benefit to consumers. “There is little evidence to show that the licensing of many different occupations has improved the quality of services received by consumers,” a 2015 Brookings Hamilton Project paper noted.

Acosta’s proposed solution is sensible. “If licenses are unnecessary, eliminate them. If they are needed, streamline them. And, if they are honored by one state, consider honoring them in your own state.”

His remarks echo a report issued by the Obama administration in 2015 which made similar recommendations. Observing that current licensing practices are often “inconsistent, inefficient, and arbitrary,” the report called on states to “review current licensing practices with an aim toward rationalizing these regulations and lowering barriers to employment.”

In this spirit, last year, the state’s Little Hoover Commission called on California to reassess the value of its extensive licensing systems, citing the harm done to consumers, the poor, immigrants, out-of-state workers, military families and people with criminal records.

Unfortunately, reform efforts have been stifled to date in California. Sen. John Moorlach, R-Costa Mesa, proposed Senate Bill 247 to drop licensing requirements for a handful of occupations like upholstery not licensed in many other states, but the bill was killed by Democrats in April.

With Trump and Obama administration officials making the same observations of the same problems, occupational licensing reform ought to be a nonpartisan effort, and one that legislators concerned with economic liberty and economic justice alike should be able to work together on.


Bull? Stocks can’t stave off California pension crisis forever


Remember 2003? Gray Davis was recalled, porn stars ran for governor, Arnold Schwarzenegger catapulted into office – and California’s state and, for the last time in many, many years, local governments paid more into their pension plans than they owed in outstanding pension debt.

In those halcyon days, your cities, state and local governments paid $7 billion to support their workers’ golden years, while the gap between what they owed those workers – and what they actually had squirreled away – was just a wee $6 billion, according to figures from the State Controller’s Office.

One year later – the year Ronald Reagan died, John Kerry faced off against George W. Bush, “The Lord of the Rings: The Return of the King” won 11 Oscars and newly sweetened public employee retirement formulas kicked in in earnest – the gap between what California governments had on hand what they owed workers exploded to $50.9 billion.

And so it went. Each year, state and local governments shoveled more and more cash into pension funds – $16 billion, $19 billion, $21 billion – but each year, the growth of their “unfunded pension liabilities,” as it’s called in government-speak, continued at a monstrous rate nonetheless – to $64 billion, $128 billion, $241 billion.

Then – hallelujah! – the hole shrank a tad in 2015, dipping to $234 billion.

Did California turn the corner?

Unlikely, experts say. That dip was the work of some stellar years on the stock market – the mammoth California Public Employees’ Retirement System clocked returns of 13.2 percent in 2012-13, and 18.4 percent in 2013-14 – mixed with a brew of overly-optimistic expectations on investment returns and less-than-realistic assumptions on how long retirees will live, among other things, which will soon be sobering up in such a way that the unfunded figures will grow even more.

Even at that lower figure, unfunded liabilities can be viewed as a $6,000 debt for every man, woman and child in the state of California.

Why should you care? Because it’s your pocketbook. If that hole is not filled up with meatier earnings and heftier contributions from public workers and agencies, taxpayers could be called upon to fill it directly.

This is where folks start talking about heady concepts like “generational equity.” Your children and grandchildren will be paying for the services that you are enjoying today. And there’s also the concept of “crowd-out;” as governments pay more into pension funds there is less available for services like roads and parks and libraries. They ask: Is that fair?

There are basically two things that can happen next: Workers and governments negotiate more modest benefits for work yet to be performed, or taxes go up.

The smart money is on some combination of the two, and the California Supreme Court may make a game-changing decision on all that soon.

California has long considered public pension promises as contracts etched in stone – i.e., the formulas in place on the first day of a worker’s employment can never, ever be changed, and any attempts to do so violate the California constitution. But state appellate courts have concluded that governments do, indeed, have wiggle room:

“While a public employee does have a ‘vested right’ to a pension, that right is only to a ‘reasonable’ pension — not an immutable entitlement to the most optimal formula of calculating the pension,” wrote Justice James Richman in a ruling regarding Marin County last year. “And the Legislature may, prior to the employee’s retirement, alter the formula, thereby reducing the anticipated pension. So long as the Legislature’s modifications do not deprive the employee of a ‘reasonable’ pension, there is no constitutional violation.”

The California Supreme Court has agreed to hear this, and similar cases. It’s unclear if it will agree.

Bear wrestling

Officials from retirement systems say they’ll be able to hold the line on the growth of unfunded liabilities and eventually catch up without changing the formulas. Observers remain skeptical.

“The economic downturn and the volatility in the market were still the primary drivers for CalPERS unfunded liability growth during this time period,” CalPERS spokeswoman Amy Morgan said after reviewing our numbers. “Our strong investment returns in fiscal year 2013-14 of 18.4 percent and pension reform savings helped offset the unfunded liabilities increase from growing significantly.”

Many agencies in California are trying to attack the problem by paying down their unfunded liabilities earlier and kicking in more than the minimum-required annual contribution, she said. The state will pay an extra $6 billion this year to fill its hole, which should save $11 billion over the next 20 years, Morgan said. In the last fiscal year, more than 150 agencies did much the same thing.

“CalPERS estimates that our unfunded liabilities are expected to decrease over time and not increase unless there is a string of losses,” she said.

Tom Aaron, vice president and senior analyst at Moody’s Investors Service, expects to see much the opposite, at least for a while.

“Something we’ve seen on a widespread basis in the past year or two is that public pension plans have reduced their assumed rates of return,” Aaron said. “Not long ago, CalPERS had assumed returns of more than 8 percent, but recently decided to drop that down to 7 percent. That results in liabilities going up.”

Even when systems hit targeted returns – and they exceeded those targets this year – the amount that governments and workers kick in isn’t enough to prevent unfunded liabilities from growing, he said. They tend to favor paying less now and paying more later, robbing them of the magic of compounding.

There is not a pension fund in America that can earn its way out of its liabilities, said Peter Kiernan, public finance specialist and chair of the New York State Law Revision Commission. Lost compounding is the primary reason.

Money makes money

Compounding, Mary Mary Quite Contrary, is how the money garden grows.

If you put $100 away today and earn 5 percent interest, viola! Next year you’ll have $105 to earn 5 percent interest, and so on. Money makes money. Exponential growth.

But, if you put $100 away today and lost money, not only is your principal gone, but the interest earnings you were counting on to pile up and earn even more interest are gone as well. Dramatic events, like the financial meltdown of 2008, wiped out billions from public pension funds – including nearly one-quarter of what was in the coffers of the CalPERS. That makes it very hard to regain lost ground.

There are larger changes at work: Forty years ago, contributions from governments and workers comprised two-thirds of what was in the pension funds, and one-third was expected from investments, Kiernan said. Today – driven by the bull markets of the 1980s and ’90s – it’s just the opposite.

Annual required contributions have more than doubled over last decade, from 6.2 percent to 18.1 percent, which leaves less money to pay for other things.

Paul Bersebach, The Orange County Register

John Moorlach. Paul Bersebach, The Orange County Register

State Sen. John Moorlach, who had been warning that the current system is unsustainable for years before the issue pierced the popular consciousness. The spike in liabilities seen between 2003 and 2004 was the work of new, more generous, retroactive retirement formulas adopted by one public agency after another in the early 2000s.

Meaning this: City A had been socking money away for Police Officer B’s retirement for decades. When City A adopted sweetened pension formulas, it suddenly was committed to paying Police Officer B quite a bit more every month for the rest of his life – even though it had ever set money aside to cover a pension that large.

Officials thought pensions were so super-funded that this retroactive thing would not come back to bite them. Add in “pension holidays” (when funds looked so healthy that officials quit putting money into them, sometimes for years), a crippling recession, lengthening life spans, a spike in retirements and reductions in what pension plans expect to earn on investments, and you get a hole hundreds of billions of dollars deep.

What’s next?

Or deeper. Current liability totals are computed assuming returns on investments that exceed 7 percent, which critics say won’t pan out over the long haul.

If one assumes lower return rates – as does former Democratic Assemblyman Joe Nation, now of the Stanford Institute for Economic Policy Research, on Stanford’s Pension Tracker – the hole can easily double, triple or quadruple.

But the end is not nigh, said Kiernan.

“California’s pension systems are underfunded significantly, but they are not in a death spiral,” he said. “An effort is being made to achieve reform and enhance funding. A good investment year easily could be followed by a bad one and there could be regression, however. It just is too early for gloom and doom.”

There must be political bargaining, he said. Since the recession, every state has tried to adopt reforms – but those modest formulas apply only to new hires, doing little to nothing to reduce current liabilities for the vast universe of public workers.

We invited several public pension advocates to share their thoughts on the numbers. They said they were studying them, but did not respond by deadline.

“The relevant question to ask is: Is there sufficient political will to achieve major reform?” Kiernan asked.

We’ll see.


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