MOORLACH UPDATE — City CAFR Rankings – Vol. 5 — February 14, 2018

Happy Valentine’s Day!

The Daily Pilot has picked up SB 1031 in the first piece below (see MOORLACH UPDATE — City CAFR Rankings – Vol. 4 — February 12, 2018).

The Orange County Breeze provides the notification that we released to announce our three pension related bills in the second piece below.

It is followed by the next 50 cities, #300-251, in our series. No OC cities are included in this group. The above link provides the last volume and links to the first three.

Senate Bill 1032, the second of the three bills introduced last week, is an updated version of last year’s SB 681 (see and MOORLACH UPDATE — CalPERS Exit Strategies — November 18, 2017). It is another solution for struggling municipalities that need options in designing a financial work around plan.

Getting bills out of the Senate Public Employee and Retirement Committee, the customary first stop for pension legislation, will be very difficult, as the unions control three of the five votes. But, we need to provide solutions for municipalities that have contracted with CalPERS that need to consider something more fiscally reasonable and realistic than the very expensive TAP (Terminating Agency Pool) exit strategy. This current straight-jacket approach is not an appropriate strategy at all and is actually fiscal extortion. CalPERS has lost its way and has become a mother of plan sponsors and not a fiduciary provider. Let’s hope this second effort motivates CalPERS to resolve their misplaced authority over what should just be servicing financial customers (versus debt bondage).

BONUS: Do you want to learn more about California’s public employee defined benefit pension plans? I will be participating with fellow governing board members and experts at a public forum on Public Pensions hosted by the Association of California Cities – Orange County (ACCOC) Friday morning, March 9th at the Newport Beach Community Center. You are invited to attend. For more information visit:

Political Landscape: State Sen. Moorlach proposes cost-of-living limit on state pension systems


Political Landscape: State Sen. Moorlach proposes cost-of-living limit on state pension systems

State Sen. John Moorlach (R-Costa Mesa) has introduced a bill that could limit cost-of-living adjustments for state pensions. (File Photo)

State Sen. John Moorlach (R-Costa Mesa) has introduced a bill he contends will reduce the future taxpayer burden to fund the state system while also protecting pensioners’ vested funds

Senate Bill 1031, introduced Thursday, would limit the pension system from making any cost-of-living (COLA) adjustments after Jan. 1, 2019, if the unfunded actuarial liability of the system is greater than 20%.

“It would protect the solvency of public-employee pensions by making sure each yearly COLA … isn’t so large it tips the underlying fund into insolvency,” Moorlach said in a statement. “If a pension system is funded at less than 80%, then the COLA would be suspended until the funding status recovers.

“The requirement would prod pension boards and policymakers to ensure pensions are adequately funded and don’t end up being cut sharply in an emergency, as happened recently to Detroit’s pensions. Not just taxpayers, but state employees and retirees should be the biggest supporters of Senate Bill 1031.”

Gov. Jerry Brown’s budget proposal for fiscal year 2018-19 sets aside $9.3 billion for pensions, with $6.2 billion toward the California Public Employees’ Retirement System (CalPERS) and nearly $3.1 billion to the California State Teachers’ Retirement System (CalSTRS).

The CalPERS funding is $389 million more than last year.

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Senator John Moorlach introduces Senate Bill 1031 to protect pensions funds

Senator John Moorlach introduces Senate Bill 1031 to protect pensions funds

“With California’s pension problem getting worse every year, I am introducing three new bills to both reduce the future burden on taxpayers and protect retired public employees’ vested funds. Gov. Jerry Brown emphasized the problem in his new budget proposal for fiscal year 2018-19, slating a whopping $9.3 billion just to pay for current pension obligations. That cost is only going to increase and divert money from other priorities unless we make it better.”

“Senate Bill 1031 is the first bill. It would protect the solvency of public-employee pensions by making sure each yearly COLA – cost-of-living-adjustment – isn’t so large it tips the underlying fund into insolvency. If a pension system is funded at less than 80 percent, then the COLA would be suspended until the funding status recovers.”

“The requirement would prod pension boards and policymakers to ensure pensions are adequately funded and don’t end up being cut sharply in an emergency, as happened recently to Detroit’s pensions. Not just taxpayers, but state employees and retirees should be the biggest supporters of Senate Bill 1031.”

This article was released by the Office of Senator John Moorlach.

Rank City Population UNP UNP Per Year of
(Thousands) Capita CAFR
300 Whittier 87,708 ($29,250) ($333) 2017
299 Oakdale 22,711 ($7,411) ($326) 2016
298 Burlingame 30,148 ($9,583) ($318) 2017
297 Roseville 135,868 ($42,898) ($316) 2017
296 Santee 57,100 ($17,759) ($311) 2017
295 Colusa 6,340 ($1,966) ($310) 2017
294 Antioch 114,241 ($34,184) ($299) 2017
293 Campbell 42,726 ($12,748) ($298) 2016
292 Selma 25,156 ($7,383) ($293) 2017
291 Crescent City 6,389 ($1,867) ($292) 2017
290 Oceanside 176,461 ($50,292) ($285) 2017
289 Bakersfield 383,512 ($108,784) ($284) 2017
288 Baldwin Park 75,537 ($21,286) ($282) 2016
287 San Anselmo 12,937 ($3,570) ($276) 2017
286 Grand Terrace 12,435 ($3,219) ($259) 2015
285 Dinuba 24,861 ($6,392) ($257) 2017
284 Sanger 26,412 ($6,695) ($253) 2016
283 California City 14,248 ($3,408) ($239) 2016
282 Dixon 19,298 ($4,444) ($230) 2017
281 Larkspur 12,572 ($2,850) ($227) 2017
280 Livermore 89,648 ($20,114) ($224) 2017
279 Martinez 37,658 ($8,402) ($223) 2016
278 Exeter 10,985 ($2,404) ($219) 2016
277 Clearlake 15,531 ($3,388) ($218) 2015
276 Anderson 10,450 ($2,150) ($206) 2016
275 Barstow 24,248 ($4,893) ($202) 2016
274 Pleasanton 75,916 ($15,319) ($202) 2017
273 Fort Bragg 7,772 ($1,518) ($195) 2017
272 Lake Elsinore 62,092 ($12,062) ($194) 2017
271 La Mesa 60,286 ($11,563) ($192) 2016
270 Galt 25,693 ($4,605) ($179) 2016
269 Reedley 26,152 ($4,457) ($170) 2017
268 Madera 66,082 ($11,207) ($170) 2016
267 Lakeport 4,786 ($801) ($167) 2016
266 San Mateo 103,426 ($16,647) ($161) 2017
265 Mount Shasta 3,355 ($523) ($156) 2017
264 Arroyo Grande 17,736 ($2,754) ($155) 2016
263 Glendora 52,608 ($7,938) ($151) 2017
262 Kingsburg 12,338 ($1,834) ($149) 2017
261 San Ramon 80,550 ($11,566) ($144) 2017
260 Corning 7,522 ($1,065) ($142) 2016
259 Yuba City 67,445 ($9,467) ($140) 2016
258 Watsonville 53,015 ($7,184) ($136) 2016
257 Cotati 7,272 ($958) ($132) 2017
256 Greenfield 17,866 ($2,284) ($128) 2015
255 Murrieta 114,914 ($14,654) ($128) 2016
254 Gridley 6,704 ($843) ($126) 2016
253 Belvedere 2,172 ($264) ($122) 2017
252 Santa Maria 106,280 ($10,597) ($100) 2016
251 Burbank 105,033 ($9,364) ($89) 2017

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MOORLACH UPDATE — 2018-2019 Budget Recommendations — January 4, 2018

The 2018 Session started yesterday afternoon with a bang. Sen. Andy Vidak (R – Hanford) introduced Senate Resolution 69, a resolution to permanently expel Sen. Tony Mendoza (D – Artesia) from the California State Senate. This caused the Democratic Caucus to immediately meet in a closed door caucus, for several hours, while the Republican Senators simply spent the afternoon and early evening waiting for them to conclude. A little after 6 p.m., the Senate reconvened and Sen. Mendoza gave an “I’m taking a one month leave of absence” speech. This is something he should have done when the President Pro Tem offered him this solution at the end of last year, during the recess. And then yesterday’s Floor Session closed with a quick thud. No comments allowed from anyone in the Chambers. The fun has begun.

I return next week for a boatload of work. I have four two-year bills to address before committees, SB 656, SB 681, SB 688 and SB 722 (see the 2017 legislative package on my Senate website). I will also have Public Employment and Retirement Committee, Judiciary Committee, and Governance and Finance Committee meetings. Plus there will be two joint hearings, where the Senate and Assembly combine, addressing sexual harassment and the Ghost Ship fire. And, if that was not enough, the Governor will be announcing the 2018-19 Budget on January 10th.

In anticipation of one of next week’s upcoming events, I decided to submit a snarky but extremely serious op-ed on the proposed budget to the San Francisco Chronicle. It is the piece below.

The year of our Lord 2018 is here and it’s game on, as we try to message to the Governor and the Legislature that California needs to turn its ship of state around. We issued an ICYMI yesterday that proves the necessity of minding the fiscal store here in Sacramento (also see my Senate website at

Happy New Year!

More money than expected for new budget

Will Gov. Brown propose to spend more or reduce debt?

By John Moorlach

While you’re struggling to make ends meet, the California Legislative Analyst’s Office reported that this year the state’s coffers will overflow with an additional, unexpected $7.5 billion of your tax dollars. Will the governor propose to spend it or save it?

On Jan. 10, Gov. Jerry Brown is scheduled to release his budget proposal for fiscal 2018-19, which begins July 1. It will be his 16th and last budget proposal and likely will include a small surplus, more funding for the Rainy Day Fund and money for his pet boondoggle, the high-speed rail project.

Meanwhile, the stock market is up some 20 percent for the year since our new president was elected. And the value of your home has been rising at a rapid clip. You’re doing great, so you’re able to spend more for gas and pay a little more in taxes. You’re a giver.

But, what about those with no savings? No stock portfolio? No home? Those who cannot afford to live close to their job? You know, those in the middle class the Democrats always talk about protecting? Those who oppose the $5.5 billion-a-year gas tax whom the governor referred to as “freeloaders”?

Guess what? The Democrats have bamboozled this significant segment of our state’s people, because the new budget, like last year’s, likely will not include adequate reforms to reduce the $8 billion to fund pension liabilities.

In 2012, Proposition 30 was approved by voters as a “temporary” fix to get us past the Great Recession, and was to expire in 2018. But, at the behest of the public employee unions and other special interests, California’s voters approved Proposition 55 in November 2016. It extended this reliance on the highest income and sales tax rates in the nation another 12 years!

Then earlier this year, the Democratic supermajority in the Legislature increased your gas tax, effective Nov. 1, 2017, starting at 12 cents more a gallon. It goes on indefinitely, with adjustments for inflation. All this tax revenue, yet the Golden State’s fiscal condition is awful.

There is some good news, however: The state’s ranking on fiscal condition no longer is the worst — it has risen to 43rd, according to a 2017 Mercatus Center Study. (New Jersey is the worst.)

We know the Democrats aren’t going to decrease tax rates and these taxes will be collected. So, what to do? As a serious corrective, here are some proposals Brown should announce in his new budget to smartly use that $7.5 billion in unexpected revenues.

Pay off bonds. The Department of Finance can proffer a list of lenders who should be paid off in advance. A state cannot rack up a $169 billion deficit without borrowing money. Sacramento could use a strategy whereby it puts in escrow enough cash to service the debt, thus saving the interest payments. The controller could then call the debt paid, as the funds in escrow will pay off the bonds as they are regularly scheduled.

Make another prepayment on public employee pension debt to both the California Public Employees’ Retirement System (CalPERS) and California State Teachers Retirement System (Cal STRS), as he did last year. This will reduce required payments in future years. This debt comes at a 7 percent cost, so paying it down is a no-brainer.

Get more aggressive in paying down the state retiree medical liabilities — exceeding $76.7 billion as of June 30, 2016. (A revised estimate is expected later this month.)

Pay cash. Get really radical and start making infrastructure investments without borrowing. The bond measures on the June and November 2018 ballots would be unnecessary if California made improvements the way many of us do on homes or business buildings.

Jan. 10 will let you know if Brown is trying to balance his budget with some serious balance-sheet debt reductions. Otherwise, his legacy will be presiding over a financial bottom-dweller state.

State Sen. 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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MOORLACH UPDATE — 37th in the 37th — August 9, 2017

First, I would like to wish my lovely, wonderful and patient wife a happy 37th anniversary! Thank you, honey, for putting up with the public service sacrifices for more than half of our married bliss. You’re incredible.

Second, the LA Times had a great Sunday California section front-page piece on the city of Loyalton (see

This city’s efforts to escape from the CalPERS “lobster trap” was the genesis for my legislative effort in Senate Bill 681, which is now a two-year bill. On June 28th, a joint hearing was held with the Senate Public Employment and Retirement Committee, on which I sit, and the Assembly Committee on Public Employees, Retirement, and Social Security. The California Policy Centerpiece below links to this hearing.

The little fact that a State Legislator was actually trying to address this matter, what is known as the Terminated Agency Pool procedure at CalPERS for exiting municipalities, was not addressed in the article. But, the California Policy Center’s Steven Greenhut realized it and provides his coverage in the first piece below.

Since this was missing from the LA Times article, I decided to let them know through a Letter to the Editor submission, with links to various segments of the hearing. Here’s what you may see in one of its upcoming editions:

Re “A tiny town’s massive pension trouble” Aug. 6:

Your article ably reported on the problem the small city of Loyalton is facing with its unfortunate and expensive withdrawal from CalPERS. But, CalPERS created the problem some 40 years ago and Loyalton is the tip of the spear in reacting to the implications of this tightening fiscal straightjacket. The current procedure of withdrawing from CalPERS is in dire need of reform.

I authored a solution to help fiscally strapped municipalities get out of this “lobster trap,” as I called it during a recent joint hearing.


John Moorlach,

Costa Mesa

The writer is the Republican state senator for the 37th district

Third, Steven Greenhut is on a roll. In the second piece below he discusses the results of SB 185 that were prophesied in the same publication that he writes for today, CalWatchDog (see MOORLACH UPDATE — SB 185 — November 6, 2015 november 6, 2015 john moorlach). If you choose not to go to the link, let me at least give you the headline: “California pension systems stand to lose millions by divesting from coal.” Spot on. Again. When will the monopoly party learn? This piece may provide a hint as to why many cities want to exit CalPERS.

BONUS: The summer evening BBQ and Taco Bar fund raiser at the home of Scott and Wendy Baugh tomorrow evening is almost at capacity. This is going to be a fun party. Thanks to those who have RSVP’d and to those who are making generous contributions, even though your summer schedules prevent you from attending. I am most grateful

There is still a little bit of backyard space available and I would love to see you there! For more information, contact or go to MOORLACH CAMPAIGN UPDATE — BBQ Invitation — July 22, 2017 july 22, 2017 john moorlach. My thanks to Cox Communications for being our corporate sponsor.


Same old story as Loyalton’s woes echo growing pension crisis

By Steven Greenhut

The tiny Sierra Nevada mountain town of Loyalton, Calif.—population: 862—has become the poster child for cities that want to check out of the California Public Employee’s Retirement System, but can’t swallow the insurmountable cost of leaving. Loyalton’s oft-repeated tale appeared again this week, on Sunday in the Los Angeles Times.

All the familiar characters are there, in the Times story. There’s CalPERS demanding far more money than the city spends on its entire annual budget. There are cash-strapped city officials struggling to make ends meet (even though their spending priorities were criticized by a 2014 grand-jury report). And there are retirees looking to get by on 40 percent of their promised pensions.

The only thing missing is a solution.

Sen. John Moorlach, R-Costa Mesa, has proposed a serious solution in the state Capitol, but the legislation has a ballpark-zero chance of passage given the power of union-allied Democrats. His Senate Bill 681 would allow an agency to “terminate its contract with CalPERS in a manner that does not result in excessive costs or penalties” while ensuring that the agency is responsible for the full costs of its employees without shifting them onto other CalPERS participants.

Though it would seem fair – and would better protect promised benefits in Loyalton and other agencies facing a similar situation – the measure is opposed by several unions. They know that once an agency has exited the system, CalPERS cannot collect anything from it in the future. That’s why CalPERS’ current approach reminds Moorlach of the lyrics from the Eagles’ song, Hotel California: “You can check out any time you like, but you can never leave.”

In 2013, the Loyalton City Council voted to end its contract with the California Public Employees’ Retirement System, the $300 billion behemoth that manages pensions for the city’s four retirees and single full-time employee. Loyalton “voted to pull out of CalPERS when its last pension-eligible employee retired,” according to the recent Times article, “deciding the monthly payments were too steep for a town that for years flirted with insolvency.”

But CalPERS wasn’t about to let the city go. In June 2014, it handed Loyalton a bill for a $1.66 million “termination” fee. Given its small $1 million annual budget, Loyalton couldn’t come up with the funds. The result was every public employee’s nightmare: Beginning last November, retirees had their modest pension checks cut by 60 percent. Some other small agencies that left the CalPERS system are looking at major cuts in retiree benefits, too.

The fund, whose sole purpose is to protect the retirement benefits of California public employees, was remarkably cold-hearted about the situation. “As a board, we have a fiduciary responsibility to keep CalPERS Fund on secure footing, and as part of this duty we must ensure that employers adhere to the contracts they agreed to,” CalPERS wrote in a November statement.

Certainly, contracts need to be honored, but there’s something seedy about the way the system is designed. During a recent legislative hearing, Moorlachfocused on the most relevant point: “When you want to exit, they use a whole different discount rate … It could be like 2 percent.” That’s a shocking revelation, although it needs some explanation.

The predicted rate of return on CalPERS’ investments determines the size of the system’s unfunded liabilities – i.e., the shortfalls to meet promises made to California public employees. CalPERS expects to earn 7 percent(recently lowered from 7.5 percent) on those investments. The higher the predicted return, the better the financial shape of the system.

Public employees are promised a pension based on a formula (the number of years worked multiplied by a percentage of the final years’ salary) and taxpayers are responsible for any shortfalls. So the pension fund, and the unions and politicians, have a vested interest in keeping the earnings assumptions as high as possible to downplay any predicted shortfalls.

Moorlach revealed a dirty little secret. The agency is bullish about the stock market when the public’s money is at risk, figuring that 7 percent is a fair rate to expect. But when cities want to exit the fund, CalPERS becomes shockingly conservative, given that its own money is on the line. It then assumes a miniscule rate of return. CalPERS assesses those high termination fees to make up the difference between its overall fund and the special fund for terminated agencies, which can no longer depend on taxpayers to make up for future downturns.

As that Times article noted, the federal judge handling the Stockton bankruptcy case “called the fee a ‘golden handcuff’ and ‘poison pill’ that prevents cities and other local governments from leaving CalPERS to find other options for employee pension benefits.” When the fund tried to assess a $1.6 billion fee on Stockton, that city stayed in CalPERS and didn’t reduce pensions for current employees and retirees. Those current and former employees still enjoy lush deals, even as the city raised taxes.

Ironically, CalPERS’ defenders criticized a 2011 Stanford study that projected a 4.1 percent rate of return as realistic, yet the fund’s handling of the Loyalton exit is a tacit acknowledgment that the system’s expected returns are unrealistically high and that pension debts are far larger than the state will acknowledge.

Meanwhile, CalPERS maintains big surpluses in the special fund for those agencies that terminated their accounts — $111 million, according to the Times. CalPERS apparently has thrown a handful of low-earning, small-town public employees under the bus to make an example for other agencies and protect the inordinately high earnings of many public employees, especially those in the public-safety and management professions.

Former San Jose Mayor Chuck Reed, a Democrat who had placed a pension-reform measure on that city’s 2012 ballot (it passed with 70 percent support, but was gutted by the courts), has described the Loyalton situation as a “wake-up call” for underfunded pension systems. “Failure to fund pension obligations as they are incurred makes retirement security impossible,” he wrote in the San Diego Union-Tribune in December.

For now, these retirement-security issues fall heaviest on some small agencies with the audacity to try to leave the nation’s largest state pension fund. Presumably, public employees and retirees in agencies deemed “too big to fail” can continue to sleep without fear. But it reminds one of another line from Hotel California: “Up ahead in the distance, I saw a shimmering light.” How long will it be before Loyalton’s problems afflict bigger California cities?

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

CalPERS’ divestment goals in crosshairs as coal stocks soar

by Steven Greenhut

SACRAMENTO – A newly released report from the California Public Employees’ Retirement System confirms that, fulfilling the Legislature’s directive to divest from coal-related investments, the pension fund has now largely exited from coal stocks. But as news reports this week suggest, this “socially responsible” investment policy has come at a price, as coal stocks soar under the Trump administration’s fossil-fuel-oriented energy policy.


The Public Divestiture of Thermal Coal Companies Act of 2015 required CalPERS to “identify, engage and potentially divest from companies meeting the definition of ‘thermal coal companies.’” The pension fund was directed to do so “consistent with its fiduciary responsibilities,” providing some wiggle room for the fund, whose primary duty is to maximize investment returns to make good on its public-employee pension obligations.

Nevertheless, CalPERS promptly identified two dozen publicly traded companies that generate at least 50 percent of their revenue from mining thermal coal, as required by the law. As the recent report explains, three companies adapted their business model and redirected their investments toward clean energy. As such, they were exempt from divestment. CalPERS had no holding in eight other companies identified under the act.

But 14 companies “failed to indicate applicable business plan adaptations, or failed to respond to CalPERS engagement efforts and were subject to divestment,” according to the report. As the Sacramento Bee explained, “stocks for 13 of the 14 companies are worth more than they were a year ago when the pension fund was divesting from the industry.” The shares of one of those firms were trading at 15 times their April 2016 levels.

There’s little question that the act was designed to achieve a social goal, rather than one related to increasing CalPERS’ investment returns. “Coal combustion for energy generation is the single leading cause of the pollution that causes global climate change,” said the bill’s author, Sen. Kevin de Leon, D-Los Angeles, as quoted in the Senate bill analysis. He added that coal is “a leading cause of smog, acid rain, and toxic air pollution” and that “most U.S. coal plants have not installed these technologies.”

CalPERS’ investment staff tends to oppose socially oriented investments, but the CalPERS board has the final say. The issue was debated at the CalPERS Board of Administration meeting in May. The Sacramento Bee reported on union officials who criticized the policy at the board meeting. “We cannot afford to lose funding for law enforcement officers in exchange for a socially responsible investment policy,” said Jim Auck, treasurer of the Corona Police Officers Association.

This isn’t the first time that there’s been tension between the fund’s politically oriented investment goals and its desire to increase investment returns. At a board meeting last year, CalPERS investment officials argued for an end to a 16-year ban on tobacco-related investments made by the system’s own investment officers. (Tobacco investments by outside firms were still allowed.) Because tobacco stocks had rebounded since 2000, news reports estimated that the pension fund had lost about $3 billion because of that decision. The fund’s total investments are valued at more than $300 billion.

Instead of following the investment team’s advice, the CalPERS board continued to ban tobacco investments and also decided to divest about $547 million in tobacco-related investments handled by outside firms. That decision also was based on social goals. Advocates for tobacco divestment argued that CalPERS ought not invest in firms that sell deadly products.

At the time, the tobacco-divestment decision was particularly controversial because CalPERS faced investment returns of a measly 0.61 percent. Now, with CalPERS’ latest returns showing a robust 11.2 percent gain, it makes continuing with the coal divestment plan – and other socially oriented investment strategies – an easier option to pursue.

Regarding coal, CalPERS isn’t the only state agency to pursue divestment. Last summer, California Insurance Commissioner Dave Jones launched his Climate Risk Carbon Initiative, which called for any insurance companies that do business in California to divest “voluntarily” from most of their thermal-coal investments. The state vowed to publicize the names of companies that didn’t comply and ramped up mandatory reporting requirements.

Insurance commissioners regulate insurers to assure they have the resources to pay any claims. Yet the department’s divestment request clearly had a social (and some say political) goal. Jones justified it by arguing that such investments put the companies at risk. “As utilities decrease their use of coal and other carbon fuel sources … investments in coal and the carbon economy run the risk of becoming a stranded asset of diminishing value,” he said in a statement.

But critics of the policy, including a 2016 study by this writer, note that insurers are invested in extremely conservative positions, mostly in fixed-income bonds, and that even the insurer with the largest percentage of coal-related investments (TIAA-CREF) had only 1.76 percent of its total assets in such holdings. Furthermore, the value of the stocks already reflects the well-known uncertainties that the insurance commissioner raised. Jones’ office argued, in response, that “since 2011, coal prices, cash flows, and company valuations have fallen sharply thus adversely affecting and bankrupting numerous coal companies.”

The broad question, especially for CalPERS, is the one raised by the union officials at the recent board meeting: Are the political and social gains of divesting from these industries worth the costs in investment returns?

Chief investment officers “invest for value and don’t appreciate being hamstrung by legislators who don’t know how to manage a diversified portfolio,” said Sen. John Moorlach, R-Costa Mesa, who voted against Sen. de Leon’s divestment act. “I think I’m the only legislator who managed a $7 billion portfolio. And the studies I’ve seen have shown that social investing has produced lower returns.”

Despite the recent good-news returns, CalPERS has an enormous amount of unfunded liabilities – the shortfall in assets to make good on all the long-term pension promises made to government employees. The system is only funded at around 68 percent. This should be of concern not only to the agency, the Legislature and public employees who depend on a CalPERS retirement, but to California taxpayers. Ultimately, they are the ones who will pay for any pension shortfalls.

Steven Greenhut is Western region director for the R Street Institute. Write to him at sgreenhut.


This e-mail has been sent by California State Senator John M. W. Moorlach, 37th District.

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Follow me on Facebook & Twitter @SenatorMoorlach.