MOORLACH UPDATE — Optimistic Budget or Not? — November 18, 2018

The Legislative Analyst’s Office (LAO) for the state of California, in a report issued this past week, is predicting the growth in personal income tax revenues will continue (see https://lao.ca.gov/Publications/Report/3718). It is also predicting sales and use tax and corporate tax revenues will be flat.

Higher personal income tax revenues, with no commensurate increase in sales tax revenues, may indicate that more individual earnings are being directed toward the cost of housing and its related expenditures.

The report provides an optimistic forecast for the next year, barring a recession. The LAO’s report will be the foundational document the Senate Budget and Fiscal Review Committee, on which I currently sit, will use as it works with the next Governor and the Department of Finance after the proposed budget for fiscal year 2018-2019, which begins on July 1, is released on January 10th. Consequently, the first proposed budget will set the tone for the next four to eight years.

To start the budget discussion, I provided a press release that was picked up by California Political Review, with commentary, and is provided in the piece below. As someone who enjoyed his role as a County Supervisor, one big take away is that Sacramento will take reserves from cities and counties when it runs out of money in a down economic cycle. Accordingly, maybe the Capitol should consider going the other direction when it enjoys a bumper crop? Especially with negotiated promises, like retiree medical and pensions, putting on their ugly squeeze (a concern that even the LAO report raises) on government agencies at all levels. Because, when the economy does cool down, it may be too late for the state to assist.

Sen. John Moorlach Cautions Legislature on Projected Surplus

By Stephen Frank

http://www.capoliticalreview.com/capoliticalnewsandviews/sen-john-moorlach-cautions-legislature-on-projected-surplus/

Jerry Brown, and economists believe California will go into a recession in the Spring of 2019. With Newsom as Governor and the Democrats not needing any Republicans to raise taxes, pass single payer, create more big spending programs, like free college tuition, free universal pre-kindergarten, plus $200 billion for the choo choo to nowhere, the plans to blow up the surplus will be laid in January, 2019 with the introduction of legislation.

Add to that the Split Roll destruction of Prop. 13 has qualifies for the November, 2020, killing the value of industrial and commercial property—when business realizes that the PPIC poll show this destruction of the California economy would pass with 58% of the vote, we then immediate fall into a recession.

“As I detailed in my October report on all 944 public school districts in the state, only about one-third of them enjoy positive balance sheets. Some of the worst balance sheets are in the largest districts. Los Angeles Unified School District is the worst, with a negative $10.9 billion balance sheet, followed by San Diego Unified at negative $1.5 billion; Fresno Unified at negative $849 million; and Santa Ana Unified at negative $485 million.

Under AB 1200 from 1991, the state is required to put severely distressed school districts into receivership, including taking over their finances. If that happens to these major school districts – and many smaller ones – the state could be hit for $15 billion or more in new liabilities. We need to figure out how to assist these mismanaged school districts in a fiscally prudent way.

In addition to the school districts, I have prepared financial reports on all 482 California cities, 58 counties, the three higher education systems and the state itself. The picture is ugly and, when retiree medical liabilities are added in the next few months, will get even worse. Sacramento should not swim in massive surpluses while its subsidiaries are drowning in deficits.”

Moorlach is right—we are in dangerous territory. Thanks to AB 1200, the surplus is already gone, if we abide by that law. If we don’t the school districts are bankrupt. Note the mainstream media has not said a word about this impending economic disaster.

Sen. John Moorlach Cautions Legislature on Projected Surplus

Senator John Moorlach, 11/16/18

Sen. John M.W. Moorlach, R-Costa Mesa, comments on the Legislative Analyst’s (LAO) new report, “The 2019-20 Budget: California’s Fiscal Outlook”:

The LAO is optimistic about nearly $15 billion in additional resources to allocate after putting another $15 billion into the Rainy Day fund. The report concedes its November 2000 projection of a $10.3 billion estimated surplus for 2001-02 was crushed by the dot-com bust and ensuing recession. We know how that ended.

As I detailed in my October report on all 944 public school districts in the state, only about one-third of them enjoy positive balance sheets. Some of the worst balance sheets are in the largest districts. Los Angeles Unified School District is the worst, with a negative $10.9 billion balance sheet, followed by San Diego Unified at negative $1.5 billion; Fresno Unified at negative $849 million; and Santa Ana Unified at negative $485 million.

Under AB 1200 from 1991, the state is required to put severely distressed school districts into receivership, including taking over their finances. If that happens to these major school districts – and many smaller ones – the state could be hit for $15 billion or more in new liabilities. We need to figure out how to assist these mismanaged school districts in a fiscally prudent way.

In addition to the school districts, I have prepared financial reports on all 482 California cities, 58 counties, the three higher education systems and the state itself. The picture is ugly and, when retiree medical liabilities are added in the next few months, will get even worse. Sacramento should not swim in massive surpluses while its subsidiaries are drowning in deficits.

The LAO report does not anticipate any leveling in the rising stock market, a product of President Donald Trump’s economic policies. But tech stocks, vital to California’s tax receipts from income and capital gains, have declined sharply since October 1, with Apple down nearly 20 percent.

If California really does have a surplus, then why did the Legislature put even one bond on the ballot? It will cost twice the bond’s principal when adding all the interest costs and debt payments. Why not pay cash for essential, one-time projects and save our children and grandchildren billions of dollars in unnecessary financing costs?

Will the Capital also continue to shortchange the homeless and leave certain neighborhoods victims to electric utility-caused wildfires?

Of course, the likelihood of the Legislature not spending most of this forecasted money is zero. If this unexpected surplus is spent right away, I hope at least the money will go to the critical areas I’ve mentioned, including:

  • Infrastructure projects such as fire mitigation – something obvious as large parts of the state burn down.
  • Funding back to cities and counties to alleviate their fiscal calamities during a season when Sacramento is enjoying a bumper crop.

The Public School System Stabilization Account, which was established by Proposition 2 to cover school finances in a recession. As the LAO notes, there currently is no money in the account.

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MOORLACH UPDATE — Watching Our Votes — July 4, 2018

Happy 4th of July! Wishing you a wonderful day with family and friends.

You would think Legislative leaders should have finished their calendar last week and given us this week off. Instead, everyone traveled home yesterday and they are returning on Thursday to reconvene starting at noon (ordinarily we start at 9 a.m.). Why? I’ll spare you the reasons, as there isn’t one good one.

The rare, but good news is this: someone is actually watching Senate and Assembly Floor and Committee debates and taking note of our votes.

The OC Register provides an online editorial supportive of the positions only eight Legislators took for a memorandum of understanding (MOU) that Gov. Brown recently presented to us for a vote.

Only one-fifteenth of us were brave enough to say “no” to protect the overall fiscal integrity of the state of California. That’s just how powerful the public employee unions are. At least someone was watching!

Debt is bondage. And, unfunded pension liabilities are a debt (not an estimate, as three Appellate Court Judges ruled — but, I digress). Therefore, Californians are slaves to the state’s pension systems.

The Santa Monica Mirror looks at another recent Senate Governance and Finance Committee vote. It is also watching. The column is a little caustic about Prop 13, but at least a glaring inequity was recognized. But, the unions need to position themselves to raise your taxes statewide. They know increased revenues will be needed in the future to fund the ever growing pension plan contribution expenditures.

It really is that crass. Let me give you a recent example. SEIU 1000, the union representing state employees, convinced Gov. Brown to persuade soda pop producers to agree to discontinue plans to fund a ballot measure requiring a two-thirds voter approval for increasing local taxes.

How? By having the Legislature pass a law last week that would prohibit local municipalities from raising sales taxes on groceries, with certain exceptions for cannabis. Why? Even though local municipalities are choking on their pension plan cost increases, the state unit of SEIU wants the ability to increase taxes to be statewide, once again, to save its pensions, not those at the local level. The joys of political power. Yes, one large public employee union just tossed all of the smaller ones around this state, more than 600 of them, under the proverbial bus.

The state is not run by elected representatives, it is run by the public employee unions. That is why the Janus decision is such a big deal

(see MOORLACH UPDATE — Happy Independence Day Week — July 1, 2018). Right now we are slaves to debt and the public employee unions that created it.

Well, for this brief 24-hour period, enjoy the celebration of freedom from the bondage of English rule. Then go back to work on Thursday and keep those income tax withholdings and sales taxes coming Sacramento’s way.

Happy Independence Day!

OPINION

Democrats and Republicans

unite in Sacramento to give

prison guards a large raise

By letters |
Orange County Register

https://www.ocregister.com/2018/07/03/democrats-and-republicans-unite-in-sacramento-to-give-prison-guards-a-large-raise/

California’s prison guards are set to get a five percent pay raise this year.

Why?

Because California state government is led by unprincipled politicians who gladly throw around taxpayer money to appease public sector unions.

That’s why.

The five percent raise was so unjustified the nonpartisan Legislative Analyst’s Office had to speak up.

The LAO wrote in May that there’s “weak justification for [the] large pay increase,” that there’s “no evidence of recruitment and retention issues,” that “pay raises since 2001-02 have exceeded inflation,” that the “pay increase will likely be extended to managers and supervisors” and that the “pay increase could increase [the] state pension contribution rate.”

But none that mattered to the overwhelming majority of state legislators, who approved the one-year contract with the raise on June 14.

In the Senate, only Sen. John Moorlach, R-Costa Mesa, spoke up against the raise on the Senate floor. “If in this budget we are not going to make a concerted effort to reduce our unfunded liabilities, we should be very cautious about giving pay raises,” he said.

Sen. Holly Mitchell, D-Los Angeles, usually one of the wiser state senators on criminal justice issues, nevertheless urged a vote in favor.

It passed 30-3, with only Moorlach, Democrat Steve Glazer and Republican Mike Morrell voting against.

The Assembly was no better. Assemblyman Jay Obernolte, R-Big Bear Lake, was the only one to speak against it on the floor. “California already has the highest cost per incarcerated prisoner of any state in the country, this MOU will exacerbate that situation,” he said.

Then Democrat Phil Ting, wearing a bow tie, said something about how hard working the prison guards are and how other unions have gotten similar raises too and asked for a vote in support.

It passed 73-5, with Obernolte, joined by fellow Republicans Travis Allen, Catharine Baker, Kevin Kiley and Melissa Melendez, voting against the contract.

The lopsided outcome, in defiance of fiscal responsibility and the many reasons to vote against it, and the bipartisan approval for the deal is hardly a surprise.

Most Republican politicians will talk a good game about fiscal responsibility, but they have their own favored special interests, with “public safety” unions among their favorite, and they rarely flinch at Big Government in the form of grotesque prison spending.

The Democratic establishment, meanwhile, is all too willing to abandon principle to appease its primary constituent: public sector unions. After all, they’ll gladly throw disabled workers under the bus if it means pleasing the SEIU, as they just did. And they’ll throw unjustifiable pay raises to the California prison guards with little objection.

It’s no wonder California’s prison spending continues to rise even as the number of prisoners falls, and that as a result per-prisoner spending is now around $80,000 a year. It’s also no wonder it took a United States Supreme Court case, and multiple voter initiatives, for California to make any meaningful progress on criminal justice reform. California needed federal court orders and voter initiatives to do things right.

With Republican politicians who abandon fiscal responsibility and all their talk about respect for the individual when it comes to locking people up, and Democrats who mostly just care about keeping public sector unions happy, it’s no wonder California’s the mess it is.

It unfortunately appears the LAO, Moorlach, Glazer, Morrell, Baker, Kiley, Melendez, Obernolte and Travis Allen were the only ones who had their heads on straight when looking at the prison guard contract. All the others just revealed what they’re all about, and shouldn’t be taken seriously when it comes to budget matters or prison spending.

Sal Rodriguez is an editorial writer and columnist for the Southern California News Group. He may be reached at salrodriguez

 

OPINION: DO DEMOCRATS REALLY WANT TO FIX PROP. 13 PROBLEMS?

https://smmirror.com/2018/07/opinion-do-democrats-really-want-to-fix-prop-13-problems/

If it’s ever to be fixed, only a ballot proposition can repair the largest and most obvious inequity caused by Proposition 13, the landmark 1978 tax-cutting initiative that causes next-door neighbors in identical homes to pay vastly different sums for property taxes.

But the other big problem area of the tax-cutting measure originally sponsored by the late political gadflies Howard Jarvis and Paul Gann could be solved by a simple vote of the Legislature. That inequity is a loophole allowing some commercial and industrial properties to escape the tax increases that normally come when a building or lot changes hands. Sadly, this loophole will remain in place at least another year, after legislative Democrats in late spring killed a Republican bill to close it.

The essence of the loophole: As with homes and other residential properties, business property is taxed at 1 percent of the latest sales price. But an exception was written into the Prop. 13 rules by legislators a year after Jarvis-Gann passed handily. This one allows the tax bill to remain static after sale unless at least one new owner has more than a one-half interest in the property.

Perhaps the most egregious case of this loophole costing taxpayers money came when former basketball star Earvin “Magic” Johnson and a group of big-money partners bought the Los Angeles Dodgers from parking lot magnate Frank McCourt and his now ex-wife Jamie.

As part of the $2 billion deal, McCourt retained a half-interest in the sprawling parking lots surrounding Dodger Stadium, even though the new owners control parking prices and get all the revenue. That essentially made Johnson & Co. the real owners, but kept the tax bill on the lots (with a book value of $300 million at the time of sale) from more than quadrupling. This has let the new owners save about $2 million yearly starting in 2012.

Theoretically, the same sort of arrangement could have been worked out for the far more valuable Dodger Stadium itself, but that would have led to reams of negative publicity the Dodgers didn’t want.

Other well-publicized examples of the loophole saving big bucks for wealthy new owners came when a Central Valley vineyard changed hands and when a landmark Santa Monica hotel was sold to a new group, later becoming part of the ultra-luxurious Fairmont group.

Almost yearly during this decade, some state legislators have tried to get rid of this egregious injustice. Back when former Democratic state Sen. Martha Escutia of East Los Angeles first proposed closing the loophole, the state’s non-partisan legislative analyst estimated a change could produce between $3 billion and $8 billion in additional property tax revenue.

The latest effort, carried by state Senate Minority Leader Patricia Bates, a Republican from Laguna Niguel, failed on a 3-2 vote of the Senate’s Governance and Finance Committee, with two ostensibly liberal Los Angeles County Democrats – Ed Hernandez and Robert Herzberg – abstaining. Both votes for the Prop. 13 reform came from Orange County Republicans, John Moorlach and Janet Nguyen, while Democrats Jim Beall of San Jose, Richard Lara of East Los Angeles and Mike McGuire of Ukiah all voted no.

The vote was odd because it’s usually Democrats striving to bring more fairness to Prop. 13, while Republicans fight to keep it static.

But over time, the conservative GOP establishment has come to see closing the 50-per-cent-ownership loophole as simple fairness. Some Republicans saw the Democratic no votes as a political ploy aimed at keeping things unfair in order to make passage of a “split roll” initiative in 2020 easier.

That proposal would see business properties taxed at a higher rate than homes, even if no sale is involved.

Said Jon Coupal, head of the Howard Jarvis Taxpayers Assn., which usually fights to maintain Prop. 13’s rules, “Killing this bill shows that progressive tax and spend interests don’t want to fix how Prop. 13 is interpreted, but they’d rather…advocate for a larger split roll tax increase. They would rather play politics.”

The bottom line is that the vote likely means this problem won’t be fixed for at least two more years, as there will be no reason for a change in Democratic tactics next year. Which means this obvious inequity will remain a part of California life and local governments will keep losing out on significant funds they could use for schools and many other causes.

This e-mail has been sent by California State Senator John M. W. Moorlach, 37th District. If you no longer wish to subscribe, just let me know by responding with a request to do so.

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