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 — Working With the Governor-Elect — November 8, 2018

One of the more amazing aspects of Tuesday’s General Election results is the number of Republicans rioting in the streets upset that Gavin Newsom will be the next California Governor.

I jest, of course. Republicans are not the ones that react this way. There. I got that off of my chest.

Looking at the local election results, please note that Orange County is still Orange County. It voted against Prop 1, while the rest of the state’s voters approved even more debt. And the OC voted for Props 5 and 6, while the rest of the state wanted more taxes (with many complaining that the rent is to damn high). Orange County also voted for the Republican statewide candidates. Orange County is still Orange County.

What did we observe? Diane Harkey, who won in the OC, failed in her run to succeed Congressman Darrell Issa. She raised $1.7 million, only to face $17 million thrown at her opponent from around the nation. The joys of having so many liberal billionaires, like Michael Bloomberg, playing in our local campaigns. Expect more of this in future election cycles, now that they are emboldened.

The voters have spoken. Accordingly, I welcome our new Governor and extend an offer to work together on many critical areas facing the state of California in my submission to The Sacramento Bee. It will be in print tomorrow morning. It is also in the San Luis Obispo Tribune and is the first piece below. And, the Canada Free Press provides Katy Grimes’ election perspectives in the second piece below.

SOAPBOX

Gov.-elect Newsom, let’s work together, starting with housing the homeless

BY JOHN MOORLACH

Special to The Sacramento Bee
https://www.sacbee.com/opinion/op-ed/soapbox/article221325820.html

https://www.sanluisobispo.com/opinion/article221325820.html

 

Congratulations to Gov.-elect Gavin Newsom. I look forward to working with you on solving the state’s most pressing problems. These include our state’s sorry fiscal condition, massive debt foisted upon our children and grandchildren and ending the boondoggle of all boondoggles, the high-speed train that improperly uses cap-and-trade funds, while doing nothing of substance to reduce California’s carbon footprint.

You’ve been opposed to high-speed rail from time to time, but now you’ll be responsible for signing the budget that does or does not continue a multi-billion-dollar black hole. It’s time to redirect this misspending for other urgent needs.

Let’s start with addressing homelessness. Even before I became an elected official a quarter-century ago, I worked diligently to help those who could not find shelter. This issue is so close to my heart that upon my 2015 special election to the state Senate, I chose to be sworn in at the Orange County Rescue Mission in Tustin.

We both could rattle off previous bills on homelessness and some of the underlying issues most prevalent with mentally ill people in California. Yet the state has only taken small steps toward removing the barriers so the least among us can actually afford a place to live.

One of my recent legislative efforts came in a bill that I co-authored with state Sen. Kevin de Leon. Senate Bill 1206, the No Place Like Home Act, became Proposition 2, which voters approved on Tuesday. It authorizes the state to borrow as much as $2 billion against the state income tax on millionaires to build housing for homeless mentally ill individuals.

I also helped move forward the bipartisan Assembly Bill 488, which creates a long-needed Orange County Housing Finance Trust to fund the planning and construction of homeless housing. Orange County generates the second most personal income taxes among California’s counties, but also has to deal with a large mentally ill homeless population.

Looking forward to 2019, there is much more to be done. You have called for building 3.5 million new homes by 2025, a herculean task. But that certainly is possible in a state that once built the State Water Project and the world’s best public universities.

You are quoted as being proud of outraging activists by cutting welfare for single homeless adults and applying those funds to housing services while San Francisco mayor. Good for you.

Now I suggest an even bigger “Nixon goes to China” opportunity to move the dial on housing construction – reform the California Environmental Quality Act. Designed to protect the environment, CEQA instead has become a bureaucratic monstrosity and NIMBY tool that greatly increases the time and cost of building housing of any kind.

When the will is there, CEQA has been magically modified to expedite construction for sports stadiums and arenas, including exemption bills this fall for the Oakland A’s and Los Angeles Clippers. I did not vote for those bills because I oppose CEQA favoritism.

What’s good for millionaire players and billionaire owners should be good for the middle class and the homeless. But Gov. Jerry Brown did little on CEQA reform as he presided over the worst housing situation in generations.

Gov.-elect Newsom, let’s push for substantive CEQA reform stop the expensive and unnecessary high-speed rail fiasco, address the state’s debt and care for the least among us.

John Moorlach, a Costa Mesa Republican, represents the 37th District in the state Senate. He can be contacted at Senator.moorlach.

California Blue Wave: Will it Lead to Insolvency Faster?

There is only so much we faithful, native Californians can take. How much beautiful weather is worth this leftist insanity, and/or before this leftism turns into liberty crushing authoritarianism? Just sayin…

Katy Grimes image

By Katy Grimes

https://canadafreepress.com/article/california-blue-wave-will-it-lead-to-insolvency-faster

The midterm elections have turned out as most observers expected, nationally, statewide, and in Sacramento. By historical standards, nationally, the Democrats underperformed and lost a number of high-profile races. There was no Blue Wave—more like a blue ripple.

However, California is another story, remaining as blue as can be, and headed right into insolvency. In the contest for governor, California voters chose Democratic politician Gavin Newsom over Republican businessman John Cox, who is not a politician.

California goes ‘Full Nuthouse’ as my friend Leslie Eastman reports at Legal Insurrection. In addition to electing Newsom, Eastman points out voters rejected a repeal of the gas tax, and says, “a majority of Californians are thrilled that Sacramento will squander more of their money.”

A friend pointed out “California is a state where everyone bitches about how poor they are and how they need rent control, and yet constantly vote to raise their taxes every chance they get. The voters of this state have never seen a tax increase or bond measure they didn’t love.”

Brilliant.

Californians also re-elected long-time incumbent Democratic U.S. Sen. Dianne Feinstein, rejecting Democratic State Senator Kevin de Leon (Los Angeles). Dumb and dumber was the choice there.

There were some surprises as well. California Democrats flipped three Republican districts: Rep. Steve Knight, (CA-25th District) lost to Democrat Katie Hill, Republican Diane Harkey lost Rep.Darrell Issa’s 49th District to Democrat Mike Levin, and Republican Rep. Dana Rohrabacher lost his race in the 48th District to Democrat Harley Rouda.

In statewide races, it appears Marshall Tuck has beat Assemblyman Tony Thurmond in the race for Schools Superintendent. Tuck is a real reformer. “Tuck made a name for himself in Los Angeles turning around high-poverty, low-performing charter schools before then-Mayor Antonio Villaraigosa recruited him to improve schools within the conventional public school system,” the San Francisco Chronicle Editorial Board said in their endorsement of Tuck. “Marshall Tuck is the clearest and most emphatic voice for reform in the field.”

Democrat State Senator Ricardo Lara and Steve Poizner appear in a near tie for Insurance Commissioner.

California’s Legislative Democrats appear poised to regain their super majority in the state Senate and retain the super majority in the Assembly.

Democrat Assemblywoman Anna Caballero beat Republican Rob Poythress in the race to succeed outgoing Republican Sen. Anthony Cannella in the Central Valley 12th Senate District.

Incumbent Republican State Senator Andy Vidak surprisingly lost his reelection against Democrat Melissa Hurtado in Senate District 14.

“Picking up both seats would give Democrats 28 seats in the Senate and restore the super majority they lost in June when voters recalled Josh Newman of Fullerton,sacbee.com reported.

The ballot initiatives were another surprise. Proposition 3, the water bond, was thankfully defeated. “With millions of dollars of unspent water bond money from 2006 and 2014 water bonds, why is there yet another a water bond on today’s June Primary ballot, and another on the November ballot?” I wrote in June 2018.

Proposition 5 was defeated, which would have allowed homeowners age 55 and older to sell their current homes, purchase a replacement property anywhere in the state and transfer the property tax assessment from the home they sold to the home they bought. The opposition lied and claimed that the state would have lost millions of dollars if Prop. 5 passed. Not so—Prop. 5 would have encouraged empty-nesters to sell their large family homes and downsize without being penalized. And it would have meant more money with the sale to the new owners.

Proposition 6, the gas tax repeal was also defeated—California’s high gas taxes and high car registration fees will remain. Sadly. Prop. 6 would have also amended the state constitution to require voter approval of all future increases in fuel and vehicle taxes or fees.

Proposition 8, which would have authorized State Regulation of Kidney Dialysis Clinics, was defeated. Thankfully.

Proposition 10, repeal of Costa-Hawkins, was defeated. Prop. 10 would have allowed state government to regulate rent, and would actually have created an even worse housing shortage in California.

Sacramento’s Measure U sales tax increase, a slush fund for greedy politicians, was passed by voters, despite that Sacramento city revenues are more than $120 million up from 2010, and up 16 percent in just the past two years.

Measure U doubles the 2012 half-cent sales tax increase and makes it permanent, raising Sacramento’s sales tax to 8.75 percent.

Mayor Darrell Steinberg and most of the members of City Council can’t or won’t be honest about their gross spending and particular taste for other people’s money. Despite promising to spend the Measure U tax increase money wisely, the additional $50 million will likely go straight to unfunded city pensions, which are expected to increase by $60 million a year and are projected to hit $129 million by 2022-23.

What is needed is spending discipline rather than continuing to pick the pockets of the taxpayers and business owners.

Buried at the end of the SacBee article on Measure U’s passage, is this little gem:

“Even with Measure U’s passage, the city’s budget is still projected to be in the red. The city deficit is estimated to be $7.6 million in fiscal year 2019-2020 and $28 million in 2022-23, according to the city budget. If Measure U had failed, the city’s deficit was projected to grow to $47.3 million in fiscal year 2019-2020, and to $80 million in 2022-23.”

Will California’s Blue Wave lead to insolvency faster?

Costa Mesa Republican Sen. John Moorlach’s fiscal report, “Financial Soundness Rankings for California’s Public School Districts, Colleges & Universities” finds 2/3 of California’s 944 School Districts bleed red ink. That report follows his March 2018 reports on the state’s 482 cities that found 2/3 of them in the red; of 58 counties, 55 suffered deficits and only three enjoyed positive balance sheets. His May 2018 report on the 50 U.S. states found only nine were financially healthy, with California ranked among the worst, in 42nd place.

There is only so much we faithful, native Californians can take. How much beautiful weather is worth this leftist insanity, and/or before this leftism turns into liberty crushing authoritarianism? Just sayin…

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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 https://www.bsa.ca.gov/pdfs/reports/2018-037.pdf).

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 https://www.sacbee.com/news/politics-government/the-state-worker/article217166950.html). 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 https://www.kcra.com/article/wine-country-wildfire-victims-learn-many-are-underinsured/24454523.

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 https://moorlach.cssrc.us/content/senate-bill-1297-state-chief-operating-officer).
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

http://www.foxandhoundsdaily.com/2018/10/grappling-californias-housing-crisis/

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 — Housing Bond Audit — October 5, 2018

This past Tuesday, I was back up at the Capitol to participate in the Joint Informational Hearing of the Senate Transportation & Housing and Governance & Finance Committees, as I sit on the latter. The title was “Housing for Working Families: How Do We Pay for It?” It was the first of two hearings. As this hearing dealt the housing shortage and financing, the market forces actually causing this crisis will be the topic of the next hearing to be held in November in the city of Long Beach. (If it were up to me, the regulatory dynamics unique to the California real estate market should have been addressed first.)

The first panel, addressing the topic “California’s affordable housing crisis by the numbers, recent actions to close the housing gap, and new ideas for future investments,” included Lisa Bates, Deputy Director of Financial Assistance, California Department of Housing and Community Development.

It gave me the opportunity to ask Ms. Bates about the recent State Auditor’s audit report on her department and its shortcomings (see the fact sheet at https://www.auditor.ca.gov/pdfs/factsheets/2018-037.pdf and full report at https://www.auditor.ca.gov/reports/2018-037/index.html). The Chair of the Transportation & Housing Committee, Senator Jim Beall, thanked me for the inquiry, as he too was concerned about the report.

A few thoughts. There is a $4 billion housing bond measure on the November ballot, Proposition 1, that this department would oversee (also see MOORLACH CAMPAIGN UPDATE — 2018 Ballot Measures — September 21, 2018). It would be more reassuring if the audit report praised Housing and Community Development. Consequently, voters are likely to approve another massive bond with minimal oversight.

Our State Auditor does great work. Regretfully, no one seems to care. Have you heard any reaction to the audit report from the Governor? From Alexis Podesta, the Governor’s Secretary at the California Business, Consumer Services and Housing Agency? I didn’t hear a peep from her.

Now you can see why I authored SB 1297 this year to establish the office of a Chief Operating Officer (see https://moorlach.cssrc.us/content/senate-bill-1297-state-chief-operating-officer). No one seems to be running the show in Sacramento (also see MOORLACH UPDATE — SB 1297 – COO — April 19, 2018).

Fortunately, The Bond Buyer permitted me to vent a little on these two concerns in the piece below. Note: The reference at the conclusion of the piece should be to Proposition 63 (2004).

California is better at authorizing housing bonds than administering them

By Keeley Webster

https://www.bondbuyer.com/news/audit-problems-with-california-housing-bond-administration?brief=00000159-f607-d46a-ab79-fe27f2be0000

LOS ANGELES — California’s housing agency exercises inconsistent oversight of programs funded by state housing bonds.

That’s the state auditor’s conclusion in a report that was released a few weeks ahead of the November election, in which state voters will be asked to authorize $4 billion of new general obligation bonds for housing.

The Department of Housing and Community Development’s oversight of bond funds remains inconsistent, said California State Auditor Elaine Howle.

The audit of the Department of Housing and Community Development is State Auditor Elaine Howle’s fifth in a series tracking results from the Housing and Emergency Shelter Trust Fund Acts of 2002 and 2006.

The agency’s “oversight of housing bond funds remains inconsistent and HCD has failed to follow through on half of our recommendations from previous reports,” Howle wrote in a letter to state lawmakers attached to the 41-page report released in late September.

“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,” Howle wrote.

“HCD generally provided adequate monitoring of its loan‑based programs by performing on‑site visits and reviewing required reports. However, it did not adequately monitor its grant‑based programs,” the audit report said. “As a result, it cannot be certain that award recipients for these programs used the funds to assist target populations with homeownership or home rehabilitation.”

State Sen. John Moorlach, a Costa Mesa Republican, called Howle “the real deal,” who has been willing to take on the same issues he has hammered as a senator – primarily what he sees as poorly run state agencies.

Though Howle has issued five reports questioning oversight of housing bond funds, nothing has changed, she wrote.

The accountability in Sacramento is negligible – and bonds continue to be approved by voters, Moorlach said.

“Howle writes these reports and no one gets fired, nothing gets modified and no one gets retrained,” he said.

Moorlach authored a failed bill asking that the state create a chief operating officer position to make sure criticisms raised in audits are addressed.

The state’s November bond measure comes on top of more than $10 billion in housing bond measures that have been approved by voters statewide and in individual cities and counties over the last two years.

San Jose, Santa Rosa and Santa Cruz in northern California are following the lead of other coastal cities that got voter approval for housing bond measures, and are placing measures on November’s ballot.

Issues raised in audits — particularly around the use of bond funds — don’t seem to affect the rate of voter approval on bond measures.

“I think 90% of the bond measures on the state ballot have been approved,” Moorlach said. “People don’t realize there is a cost. They don’t realize it is going to raise taxes. They don’t understand debt.”

Reports by Michael Coleman of the California League of Cities bear out Moorlach’s comments on approval rates for state bond measures. School district bond measures and city tax measures have an even higher approval rate.

The state’s $4 billion Proposition 1 would fund a variety of existing programs, including $1.5 billion to support apartments for low-income residents and $1 billion for loans to help veterans purchase farms and homes.

Many of the recent spate of city and county housing bond measures have been aimed at tackling homelessness.

It’s a case of trying to fix a symptom while not dealing with the underlying problem, said Christopher Thornberg, founding partner of Beacon Economics, LLC, an independent research and consulting firm.

While very visible, Thornberg said, the homeless population in California is a minuscule percentage of the overall population. In Los Angeles County, it’s 45,000 people in a county of 10 million.

“The idea that the housing shortage is best discussed in the context of homelessness is like saying an elephant is best discussed on the basis of its tail,” Thornberg said. “Politicians are making a big deal out of homelessness and it’s distracting from the real problem, which is the failure to clean up the zoning issues or allow a proper degree of development by failing to push back against the NIMBYs.”

“We view California’s housing shortage as an important, though difficult to quantify, long term headwind to the state’s economic growth prospects,” said Gabriel Petek, an S&P Global Ratings analyst.

There’s an economic cost: the price of housing, both rental and for-sale, has soared in the Bay Area, for example, as housing inventory failed to keep pace. Between 2011 and 2015, the Bay Area added over 500,000 jobs, but only 65,000 housing units, according to the Bay Area Council, a business group.

S&P Global Ratings has been including the state’s housing shortage in ratings reports for several years.

“We view California’s housing shortage as an important, though difficult to quantify, long-term headwind to the state’s economic growth prospects,” said Gabriel Petek, an S&P Global analyst.

“For example, notwithstanding that California boasts strong income and wealth indicators—per capital income is 116% of the nation for 2017—it’s also plagued by an above average poverty rate,” S&P wrote in an Aug. 23 report, when it affirmed California’s AA-minus GO bond rating. “After accounting for the cost of living, the state’s poverty measures look even worse. Nowhere is this more evident than in the state’s real estate market, where a chronic shortage of affordable housing, especially in its large metropolitan areas, undercuts the state’s business climate.”

The California League of Cities supports Proposition 1.

It also supports Proposition 2, the No Place Like Home measure, which would ratify a plan to allow the state to use an income tax surcharge to support mental health programs to back bonds to fund housing for homeless people with mental health problems.

In 2016, Brown signed legislation allowing up to $2 billion of bond proceeds to be backed with revenue from the so-called millionaire’s income tax imposed in 2004’s Proposition 62.

That plan has been tied up by a lawsuit contending Proposition 62 does not authorize the use of bonds. Proposition 2 would remove that ground for the suit.

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MOORLACH UPDATE — Joint Author Details — July 7, 2018

Now that the California Legislature has started its summer break, it seems the media attention of late has been focused in the Opinion pages. This is true of my last UPDATE (see MOORLACH UPDATE — Watching Our Votes — July 4, 2018).

In the first editorial below, The Sacramento Bee has a piece about SB 1004 on its website by former Assemblywoman Cheryl Brown. I enjoyed working with Ms. Brown and built a good relationship with her while she was in Sacramento, during my first half-term. Because of my affection for Ms. Brown, allow me to provide more detail than normal and to share two themes that have been evolving recently in my life.

The first is building relationships with members across the aisle (see MOORLACH UPDATE — AB 521 — November 12, 2015). On occasion, I will coauthor a bill introduced by a Democratic Legislator. This year I upped the game and Joint Authored two bills with Democratic Senators.

Senate Bill 1206, the No Place Like Home Act of 2018 was introduced by Senator, and former President Pro Tem, Kevin De Leon and myself (see http://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180SB1206). It was recently replaced by Assembly Bill 1827, a budget trailer bill, due to the urgency of needing to get this measure on the November ballot (see http://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180AB1827&search_keywords=no+place+like+home). For more background on this proposal, see MOORLACH UPDATE — SB 1273 and MCO Tax — February 27, 2016.

You will see this effort as Proposition 2 on the November General Election ballot. You know that I usually oppose general obligation bonds, but this proposed bond has an existing revenue stream to pay the principal and interest. I would call this technique hypothecating or securitizing an income stream to get the principal up front in order to begin constructing or investing in a project immediately.

The revenue source is the Mental Health Services Act (MHSA), created by voter approval through Proposition 63 of 2004. It is also known as the millionaires tax, so the revenues should be reliable as long as wealthy residents are willing to pay for the great weather. I say this, as there are signs that high net worth individuals have been leaving the state since the passage of Gov. Brown’s income tax increase resulting from the successful passage of Proposition 30 in 2012. This was a proposition that I opposed (see MOORLACH UPDATE — Costa Mesa Voter’s Guide — October 6, 2012 ).

The MHSA revenues helped me to find funding to implement Laura’s Law in Orange County through the passage of SB 585 (Steinberg). It also helped me to change state law to provide more crisis stabilization unit beds to assist our public safety officials when they encounter an individual facing a mental health crisis (see MOORLACH UPDATE — Mentally Ill Inmates — June 11, 2016).

Appreciating this strategy, I was an early supporter of the No Place Like Home effort by Sen. De Leon, which uses a small percentage of MHSA revenues to repay the bondholders. The proceeds will be used to construct or refurbish immediate housing for the mentally ill homeless population.

This year I also joint authored Senate Bill 1004 with Sen. Scott Wiener of San Francisco (see http://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180SB1004). This bill focuses on prevention and early intervention, as mental illness is showing up in impacted children as early as age 14. The sooner it is diagnosed, the better the opportunity to implement appropriate strategies. A great example would be CHOC’s pediatric psychology efforts, a new treasure in my District, which I mentioned in my May 1st UPDATE (see https://www.choc.org/programs-services/mental-health/).

Why do I provide so much detail? Because the MHSA is rather vague and has confused counties to such a degree that they have accumulated nearly $2.5 billion in unspent funds.

Consequently, providing some clarity in this area would be helpful. Which brings me to the second theme. I have found myself focusing on the topic of mental illness. It started while I was a County Supervisor in trying to understand and implement Laura’s Law (see MOORLACH UPDATE — Laura’s Law Journey — August 11, 2014).

This evolution has found me joining the Mental Health Caucus and being appointed this year to the Senate Select Committee on Mental Health. I remind everyone that I was a business major, not a pre-med major. So, this has been an education for me over the past dozen years or so, starting with the killing of Kelly Thomas in Fullerton (see MOORLACH UPDATE — Kelly Thomas Reverberations — January 15, 2014).

With that, I joined Sen. Wiener to provide clarity. SB 1004 seeks to clarify where some of the funding should be prioritized. Former Assemblywoman Brown fears this will impact the share of the pie for the elderly. I believe this fear is unfounded. Instead of opposing the bill, she should work with me and others in the Mental Health Caucus to draft a bill that focuses funding attention for the elderly and even pursues an effort to classify dementia and Alzheimer’s as mental illnesses eligible for MHSA funds.

The second column is in the Press-Enterprise and Daily Breeze and it follows the theme recently presented in MOORLACH UPDATE — Janus Decision — June 28, 2018.

It refers to an effort I pursued last year (see MOORLACH UPDATE — There Ought Not Be A Law — April 23, 2017 and MOORLACH UPDATE — Earning a Living — November 30, 2017). Ironically, the argument that Sen. Morrell received for stopping his efforts was the same one used to kill my bill.

What a tragedy that Assemblyman Low would bow to the pressures of an industry group’s representatives in attendance with their weak opposition argument, but could totally ignore the long line of opponents to his bill, AB 2943, when it recently came before the Senate Judiciary Committee, of which I am Vice Chair. All the more when the number of individuals wishing to testify against his bill was so large that they had to fill the balcony of the Senate’s largest hearing room and the hallways, requiring one and one-half hours to let them all come to the microphone. The ironies continue.

SOAPBOX

Legislature must not slight seniors in mental health money

BY CHERYL BROWN

Special to The Sacramento Bee

https://www.sacbee.com/opinion/op-ed/soapbox/article214391359.html

An important measure to expand access to mental health care services in California is going through the Legislature, but it would make it more difficult for counties to serve older adults.

Senate Bill 1004, which was approved by the Assembly Health Committee on June 19, would amend Proposition 63, passed by voters in 2004 to provide funding for county mental health services with a 1 percent tax on annual incomes of more than $1 million.

Sens. Scott Wiener, D-San Francisco, and John Moorlach, R-Costa Mesa, who introduced SB 1004, appear to be at odds with the needs of older adults because the bill shifts the focus of the Mental Health Services Act primarily to young people.

The bill says that 75 percent of mental illnesses begin by 14 years of age, citing a study showing the relationship between early trauma and life-long problems.

Most of them grew up when mental health problems were less understood, diagnosed or appropriately treated. As a result, many tend to shy away from mental health services. Yet adults between 45 and 64 old are at the highest risk for suicide nationally, and in recent years California’s suicide rate among adults 65 and older has been higher than the national average.

The senior community believes that SB 1004 should also address the mental health needs of seniors as much MHSA money remains unspent. The California Commission on Aging offered amendments stressing that older adults are also at risk of anxiety depression, anxiety, psychological traumas and suicide.

Sadly, the Assembly Health Committee did not consider the amendments. As a result, the Commission on Aging opposes SB 1004 because it would make it more difficult for seniors to secure the mental health services they need.

Cheryl Brown is a member of the California Commission on Aging and former chairwoman of the Assembly Committee on Aging and Long-Term Care. She can be contacted at cheryl1242.

OPINION

Will ‘sunset review’ shut the

lights on onerous licensing

rules?

By STEVEN GREENHUT | Press-Enterprise

https://www.pe.com/2018/07/06/will-sunset-review-shut-the-lights-on-onerous-licensing-rules/

https://www.dailybreeze.com/2018/07/06/will-sunset-review-shut-the-lights-on-onerous-licensing-rules/

SACRAMENTO — One of my favorite Ronald Reagan quotations illustrates the problem of an ever-growing government: “Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we’ll ever see on this Earth!” In my decades covering public agencies, I can think of only a handful of rollbacks — and they usually ended up perversely expanding government power.

In one recent case, the state Legislature gutted a state tax board, known as the Board of Equalization. But its powers merely were shifted from elected officials to bureaucrats in different agencies — and now California taxpayers are more frequently getting the shaft. That’s how government works.

Last week, a simple bill (sponsored by my employer, the R Street Institute) would have rolled back licensing requirements for only one of the hundreds of trades and professions that require a state license to work. Burdensome education requirements, fees and testing become obstacles for lower-income people to get gainful employment that doesn’t involve flipping burgers. The requirements often have no relevance to public safety, but usually are the result of powerful interest groups that use government to lock up some part of the market.

Last year, Sen. John Moorlach, R-Costa Mesa, introduced a bill that would have eliminated such requirements in a variety of fields, but it was a non-starter given its broad scope. It was referred to multiple committees and dead on arrival. So this year Sen. Mike Morrell, R-Rancho Cucamonga, introduced legislation that targeted one particular — and particularly ridiculous — set of licensing rules involving people who want to shampoo, arrange, dress and curl (but not cut) hair for a living.

If you shampoo hair for pay at, say, elderly people’s homes or at a salon — and haven’t spent as much as $19,000 at a barbering and cosmetology school — then you are an outlaw. It’s illegal to do so in California. The Board of Barbering and Cosmetology posts this Frequently Asked Question on its website: “I would like to hire a person for the sole purpose of shampooing or preparing consumers services; can I do this?” The answer: “No, only a licensed barber, cosmetologist or apprentice can wash a consumer’s hair or prepare a consumer for services.”

Did I mention that a shampooer needs 1,500 hours of training, whereas a first responder/emergency medical technician only needs 120 to 150 hours of training? The Morrell bill passed the full Senate with only two “no” votes, but was killed last week in the Assembly Business and Professions Committee on a 14-3 vote in spite of the fact that most of us have shampooed our own hair for years without calamity.

The hearing room was packed with students from local cosmetology schools. It should surprise no one that the main beneficiaries of the current rules are the schools that charge hefty tuitions for such training, nor should it be a surprise that the state bureaucracy (the Department of Consumer Affairs) estimated excessive fee-revenue losses if the bill became law. Those estimates are hard to fathom given how unimaginable it is that people currently go through the whole licensing rigmarole and then only use the degree mainly to shampoo and arrange hair.

But government agencies see any kind of minor regulatory rollbacks as a threat to their authority. There’s always that fear of the slippery slope. There’s also an economic term known as “regulatory capture.” It’s typical in all aspects of government for industries that are being regulated to dominate the agencies that do the regulating.

The main argument that the Assembly Business and Professions Committee Chairman Evan Low, D-San Jose, used to oppose the bill is that the issue can be handled in the forthcoming Sunset Review hearings. The Assembly and Senate business and professions committees hold these annual hearings in the fall to “discuss the performance of the boards and make recommendations for improvements,” according to the legislative website. The term “sunset” comes from the legislation, which would sunset the many boards out of existence unless they justify their existence.

This is one of those cool ideas that sounds much better in theory than in reality. Government agencies should indeed have to explain what they do to stay in business. But California’s Sunset Review process rarely leads to the sunset of anything. Senate Bill 999’s opponents note that the review led to legislation last year that eliminated the Board of Guide Dogs for the Blind. That was a welcome development, but the elimination of that pointless board was backed by regulators and the industry itself.

By contrast, SB999 is opposed by the beauty industry and the bureaucracy. Nevertheless, I’ll take legislators at their word and closely watch as they advocate for the end of onerous regulations that benefit business owners at the expense of aspiring low-income workers. Wouldn’t it be great if California’s Legislature turned out to be the exception that proved Reagan’s rule?

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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