MOORLACH UPDATE — Double Talk — June 27, 2017

You’ve got to love our Governor. Out of one side of his mouth, he wants to reduce gasoline consumption in the state. Out of the other side of his mouth, he wants to tax gasoline consumption with a per gallon tax in order to repair roads (whose maintenance he neglected). Also see MOORLACH UPDATE — SB 1 — March 9, 2017 march 9, 2017 john moorlach.

As for the state budget, out of one side of his mouth he claims that a recession is coming and that major cuts are on the horizon. Out of the other side of his mouth, he wants to deposit $6 billion into CalPERS, right before this anticipated market downturn. Boy, isn’t this double talker lucky that he is out of office in a few months?

Yesterday, I followed through with my comments from Saturday’s UPDATE (see MOORLACH UPDATE — Addressing Pension Mess — June 24, 2017 june 24, 2017 john moorlach). However, we did not hear AB 100 in Committee. We heard SB 84, the Senate equivalent, on the Senate Floor. The debate is covered in the first piece below by Associated Press, which is on the KCRA website, among others. For the video of my Floor speech, see

As a reminder, here’s what I said in a recent quote (see MOORLACH UPDATE — CalPERS and “C” Words — May 26, 2017 may 26, 2017 john moorlach):

“I’m not an immediate ’No.’ I’m a ’Yes — but,’“ Moorlach said. ”Let’s get the details and see if it make sense.“

After seeing the details, asking the questions, being unimpressed by the responses, and offering improvements, to no avail, I voted against SB 84, which barely passed.

Last Friday I enjoyed an annual tradition of being the Master of Ceremonies for the Daily Pilot’s Hall of Fame. The Daily Pilot covers it on their website in the second piece below. Congratulations to all of the recipients!

California lawmakers advance pension borrowing plan

Story by Associated Press writer Jonathan J. Cooper


California lawmakers on Monday approved a plan to borrow $6 billion from a state savings account to pay down massive debt in the nation’s largest public-employee retirement program.

The Senate sent the measure to Gov. Jerry Brown despite concerns from some lawmakers that it could be risky to borrow money and invest it through the California Public Employees’ Retirement System.

CalPERS’ $325 billion investment fund, the largest public-employee pension fund in the country, has enough money to cover only about two-thirds of the benefits promised to retired public employees. The CalPERS board has steadily increased mandatory contribution rates for the state, cities, counties and school districts to make up for the shortfall. The state’s share of the unfunded liability is estimated to be $59 billion, with its minimum payment forecast to increase from $5.8 billion this year to $11.2 billion in 2031.

Brown in May proposed borrowing money to pay down that debt, saying the state can lend from its own short-term investment account and earn a higher return through the more aggressive investments at CalPERS. He said the proposal would save $11 billion over 20 years through lower annual pension costs.

Money borrowed from the short-term account, known as the Surplus Money Investment Fund, would be repaid with interest using money from Proposition 2, which was approved by voters in 2014 and requires the state to spend a portion of revenue paying down debts.

Republican Sen. John Moorlach of Costa Mesa said he likes the idea of prepaying retirement costs and even joined Democratic Treasurer John Chiang in writing a newspaper editorial supporting the plan. But he voted against it Monday, citing Brown’s repeated warnings that a recession is inevitable.

"If that’s the case, we will have put $6 billion into the retirement system at the most inopportune time," Moorlach said. "That is my concern, that we invest at the top of the market."

CalPERS has struggled to hit its own investment target, which is phasing down to 7 percent per year. Last year, the fund earned 0.61 percent, down from 2.4 percent the prior year.

Democratic Sen. Steve Glazer of Orinda said the idea may have merit but lawmakers should wait until it’s been more thoroughly studied.

"A few months of analysis in a public setting so everybody can hear, not in a back room, can only be a healthy thing for us to ensure this is the right course to take," Glazer said.

H.D. Palmer, a spokesman for Brown’s Finance Department, said the proposal was carefully developed with insight from lawmakers and Chiang, who has a legal obligation to responsibly oversee the state’s investments.

"We’ve fully disclosed all of the potential risks and inherent benefits it entails, and we are convinced that it’s a sound and prudent step to take," Palmer said.

The measure was approved in a 24-13 vote with support mostly from Democrats.

8 honored at Daily Pilot community service luncheon

By Bradley Zint

Eight community members were honored Friday at the ninth annual Daily Pilot Community Service Hall of Fame Luncheon.

The event at American Legion Post No. 291 in Newport Beach recognized members of Newport Beach and Costa Mesa service clubs. State Sen. John Moorlach (R-Costa Mesa) was master of ceremonies.

The honorees:

  • Peter Nevins of Costa Mesa Kiwanis
  • Ross Minion of Newport Beach Sunrise Rotary
  • Bob Kelly of Rotary Club of Newport-Balboa
  • George Lesley of the Exchange Club of Newport Harbor
  • Barbara Hayward of the Harbor-Mesa Lions Club
  • Dr. Brigide Daily of Soroptimist International of Newport Harbor Area
  • Joel Carlson of the Kiwanis Club Newport Beach-Corona del Mar
  • Bea Foster of the American Legion Yacht Club and American Legion Auxiliary Unit 291


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MOORLACH UPDATE — Addressing Pension Mess — June 24, 2017

Those of us that have a few years under our belts know that the economy moves in cycles and those swings are often driven by two things, greed and fear. We’ve seen recessions, depressions, stock market crashes and panics. We have experienced inflation, seeing interest rate yields of money market funds nearing 20 percent in the early 1980s. Others, those who have watched Japan, are even familiar with disinflation and deflation. Cycles happen.

For those who manage money, finding the mean is a key mathematical tool. In that search, when a defined benefit (DB) pension plan uses an investment return assumption that is higher than what a reasonable or prudent man would use, there will have to be an adjustment somewhere in the future. Folks, that adjustment period has arrived.

Why did public pension systems keep their investment return assumptions artificially high? Because of greed. If a DB plan keeps the return assumption high, the employer’s annual contributions are lower. This was done intentionally in order to provide public employers with just enough funds to grant additional pay raises. With higher wages, the pension liabilities increase. Gaming a DB plan only hurts the employer, by making costs higher in the future. But, this is what public employee unions have done to your municipalities and a day of reckoning has always been on the horizon. Folks, that day has arrived.

Actuaries for public DB plans have had a blind eye to this manipulation for decades. After all, if outside actuary firms argue against high investment return assumptions, they will not be hired by public DB plans. But, there comes a day when the actuary industry wakes up and criticizes their brethren in the public DB world for authorizing an assumption that is far above the mean. Folks, that day has also arrived.

Now cities, counties and states will have to increase their contributions to their public DB plans because the investment return assumption is finally being lowered. And the predicted wailing and gnashing of teeth has begun. The cities of Vallejo (see "Golden State No More" in MOORLACH UPDATE — New Geography — September 4, 2013 september 4, 2013 john moorlach, the Manhattan Institute piece in MOORLACH UPDATE — Awarding and Assuming — May 15, 2013 may 15, 2013 john moorlach, and "Vallejo: Poster Child of a New Era?" in MOORLACH UPDATE — VLF Torpedo — May 9, 2013 may 9, 2013 john moorlach), Stockton (see MOORLACH UPDATE — Wisconsin Boy — October 20, 2014 october 20, 2014 john moorlach and MOORLACH UPDATE — Pythons’ Tightening Grips — July 15, 2014 july 15, 2014 john moorlach), and San Bernardino (see MOORLACH UPDATE — City of San Bernardion — July 13, 2012 july 14, 2012 john moorlach, MOORLACH UPDATE — Thankful — November 29, 2013 november 29, 2013 john moorlach and MOORLACH UPDATE — Detroit Parking — July 18, 2013 july 19, 2013 john moorlach) are not anomalies. In fact, they are precursors to more pension distress. Consequently, the Daily Pilot provides a DB plan strategy focus for cities within its circulation area, with many within my District, in the piece below.

The piece provides local strategies. So, allow me to give an update on AB 100, the State’s proposed DB plan strategy for a supplemental payment of $6 billion (see MOORLACH UPDATE — 2017-18 Budget Deadline — June 15, 2017 june 15, 2017 john moorlach).

AB 100 enjoyed a vigorous discussion at our Senate Budget and Fiscal Review Committee meeting last Tuesday. The Chair decided to hold it over. We were scheduled to hear it again on Monday, but the meeting has been postponed to Tuesday.

My concerns have not been satisfactorily addressed to date. They are:

1. Will the CalPERS Board of Directors provide an incentive for the prepayment?
2. Will the state make the borrowing an annual loan, versus a long-term one?
3. Will the state focus more on dollar-cost-averaging, where funds are deposited in a similar amount over a long time period?

I’ve only heard negative responses. So, my "support" position is changing to a "I’ll wait for more answers before I oppose" position. And here’s why.

1. CalPERS is not making a one-time supplemental payment an attractive option.
2. Making a full payment at the beginning of a fiscal year and using short-term borrowing is safe and simple; but this is not the proposed strategy.
3. Instead of depositing the $6 billion in full next year, although over a few months ($2 billion every three months over three quarters), I would prefer stretching equal payments out over a period of a few years.

The current proposal is to borrow the funds from the Treasurer’s Surplus fund at the two-year Treasury rate, with annual principal payments coming from the Proposition 2 Rainy Day fund. I will recommend that the loan be scratched, and that the debt payments to CalPERS come directly from the Proposition 2 funds. We were told initially that this would be $427 million per year. Making this arrangement would be very similar to what our local cities are proposing: increase the annual required contribution to CalPERS by additional funds.

I will also recommend that the state supplement this suggested annual payment by finding more funds within its existing budget, like another $573 million, to then commit $1 billion per year, using a dollar-cost-averaging approach, towards reducing the unfunded liability.

Here’s why I believe the state should not make the full $6 billion in deposits in the next fiscal year in full:

1. The equity market is at all time highs.
2. The fixed income market is still at all time highs.
3. The real estate market, at least within the state, is at all time highs.

I started my preamble by stating that the economy moves in cycles. The Governor has stated that he expects a recession within the next two years. With this reasonable assumption, making a massive deposit at this time may not be prudent. And, my proposal to make $1 billion annual deposits should also have a provision that the annual payments be deferred until the next recession has been concluded.

We should have another vigorous debate at next week’s Senate Budget and Fiscal Review Committee meeting.

As for my two constitutional amendments that are referred to in the piece, SCA 8 (see MOORLACH UPDATE — San Diego U-T — October 13, 2013 october 14, 2013 john moorlach) and SCA 10 (see "Pensions and ethics," MOORLACH UPDATE — Jolly Roger — August 19, 2013 august 19, 2013 john moorlach), have been converted into two-year bills. As the Democrats in the legislature still do not have an appreciation of the gravity of the DB plan dilemma, like our elected officials at the local levels, it seems wise to wait a few more months.

I will be presenting SCA 1 at Monday’s Senate Public Employment and Retirement Committee, as Secure Choice should not be dependent on the State’s budget after it is implemented (see For some reason, several public employee unions are opposed to this bill. I would think that they would want to protect integrity of the State’s budget, as they have a focus on finding funds for raises for their members. Oh, well. Folks, public employee unions still run Sacramento, even after they’ve broken it and its cities and counties. Some day Sacramento will realize what local city councils have and act accordingly. At least our local elected officials are displaying smart fiscal stewardship.

BONUS: After 5 months of working with a partial complement of staff, I am pleased to announce that John Seiler has joined our staff in the District Office to work as our Press Secretary. Since most of you have been reading John’s work in the Orange County Register for decades, he needs little introduction from me. I have found that in addition to having a solid policy foundation, a legislator needs a robust messaging apparatus. John fills a crucial slot with our communications team.

Local cities work to pull down rising cost of pension ‘mess’

The city of Newport Beach, facing a projected $353-million unfunded pension liability in the upcoming fiscal year, has committed to paying roughly $9 million more a year to the state retirement system through 2038. (File photo | Daily Pilot)

Hillary Davis, Luke Money, Ben Brazil and Bryce Alderton

Local cities are set to dedicate millions of dollars more per year on top of already-determined payments to try to bring down unfunded employee pension liabilities that are running up to seven times higher than a decade ago.

With California’s pension crisis clearly defined, cities are beginning to budget for even larger payments to the state retirement system to keep ahead of interest.

Newport Beach has committed to paying roughly $9 million more a year through 2038, and it’s exploring setting aside money in a trust. Without taking action, the city’s projected unfunded pension liability for the new fiscal year starting July 1 would balloon to $353 million, compared with $46 million 10 years ago.

Costa Mesa will add $500,000 a year, Fountain Valley and Huntington Beach about $1 million each. Costa Mesa’s unfunded liability is projected at $246 million for fiscal 2017-18, up from an estimated $46 million 10 years ago. In Huntington Beach, the latest number is $363 million; a decade ago, it was $79 million.

“Why are we in this mess? Well, everybody’s in this mess,” said Huntington Beach Assistant City Manager Ken Domer.

The reason depends on whom you ask.

“The bottom line is that public employees didn’t cause this problem — it was caused by Wall Street bankers who got greedy and we ended up in a recession and the stock market crashed,” said Costa Mesa Mayor Katrina Foley.

According to the California Public Employees’ Retirement System, or CalPERS, about 62% of its income is the result of earnings from investing employer and employee contributions in stocks, bonds and real estate.

“Many city leaders throw their hands up and say that any meaningful action must come from the state,” said Newport Beach Councilman Will O’Neill. “I agree that the state must take meaningful action. But cities that do not take meaningful action themselves risk deficits and bankruptcy.”

Some state remedies are already in place — for example, the Public Employers Pension Reform Act of 2013, which essentially lowered new hires’ future retirement benefits by capping how much of their compensation can be factored into calculating their pensions.

Costa Mesa Councilman Jim Righeimer, who spearheaded the city’s 2011 outsourcing effort to reduce pension commitments, apportions the blame for its unfunded liability as such: “75% the people that get the money — the employees — and 25% the people that want to be elected and don’t want to upset that apple cart.”

“Nobody can believe the numbers when they start to dig into it,” he said. “They don’t realize how ridiculous it is. There is no mathematical way, period, to pay an employee 90% of their pay for the rest of their life when they’re 50 years old.”

Righeimer was referring to what is known as the “3% at 50” benefit formula, in which some public safety employees, including in Costa Mesa, can retire as early as age 50 with a pension rate set at 3% of their final year’s salary multiplied by how many years they were on the job.

Cities’ financial experts identified these factors in how the pension balloon swelled:

More-generous benefits: In 1999, the state Legislature passed a law giving public employees robust, retroactive retirement benefits. This resulted in the “3% at 50” formula.

“Agency after agency accepted the new benefits as if they were free,” said Newport Beach Finance Director Dan Matusiewicz. “They competed with each other, contending the benefits were necessary to attract and retain employees.”

As a result, liabilities likely grow at a faster rate than revenue growth, he said. The 2013 reforms “will soften this ascent, but we all know this will take decades to have a meaningful impact.”

Pensions are “grandfathered” for employees who benefited from the earlier law.

Lower returns: A gradual lowering of the rate of investment return from 7.5% to 7% per year.

For Huntington Beach, that means the city will have to pay an additional $23 million over the next few years toward pensions to make up the difference. City Manager Fred Wilson described it as a “pretty heavy hit.”

Recessions: The financial crisis of 2008 caused crippling investment losses.

“For many, it took the investment losses in 2008 to reveal how susceptible agencies are to the market-value losses on assets to fully understand how vulnerable their agencies are to the (accrued liability) associated with their promised benefits,” Matusiewicz said.

Here are local cities’ strategies for paying down their unfunded pension liabilities:


The plan: Add about $9 million a year to the existing pay-down schedule and explore setting aside money in a special trust.

Mayor Kevin Muldoon sees his city as a trendsetter.

Newport has agreed to direct $9.1 million more per year for the next 20 years to its minimum annual payments in an effort to shrink its liability. Muldoon expects other California cities to step up their payments as well.

“It’s not a pleasant issue to have,” he said at a meeting this month where the City Council voted to accept the new fiscal year’s budget with the addition. “Newport Beach is setting a trend to aggressively pay down our unfunded pension liability and pick up the slack left by Sacramento.”

With a $25-million compulsory payment defined by the state, $16.2 million in normal annual costs and the $9.1-million boost, the city’s net pension cost in 2017-18 will be $40.3 million after deducting $10 million contributed by employees.

The voluntary boost is expected to save about $15 million in interest over the 20 years.

The $9.1-million addition will be challenging but no real sacrifice, City Manager Dave Kiff said. The city has healthy property, sales and bed taxes, plus about $48 million gathering interest in its rainy-day reserve. It will split the added millions over 12 monthly installments, allowing the city to pull back if the market goes sideways.

“It is a very good strategy in (that) it strikes balance between providing a valuable service to both current and future residents,” Matusiewicz said.

Councilman O’Neill, who also is on the city Finance Committee, said this isn’t like prepaying a mortgage. Pensions are more like a “devil’s mortgage” because cities’ liabilities are growing without meaningful stability, he said.

The Finance Committee, which discusses pensions at every semi-weekly meeting, likely will address socking away money in a dedicated trust fund.

Kiff said Newport is cautiously optimistic about its plan.

“There’s always caution in what will happen in the economy,” he said.


The plan: Budget $500,000 per year for additional payments to CalPERS and annually prepay CalPERS for employee bargaining groups and use the savings from a prepay discount — more than $250,000 per year — to make additional payments. The city also has formed a Finance and Pension Advisory Committee to look at options for future reductions in pension cost and liability.

In 2011, Costa Mesa was ground zero in the battle over public employee pensions. The City Council drew national attention for a controversial decision to issue layoff notices to more than 200 employees and outsource many services.

The motivation, officials said, was to get a handle on Costa Mesa’s ballooning pension obligations. Critics, though, blasted the move as a reckless political stunt.

Though the council eventually abandoned the bulk of its outsourcing plan and settled a lawsuit with the Costa Mesa City Employees Assn., the philosophical battle over public pensions in the city has never entirely gone away.

The unfunded liability itself also hasn’t disappeared. In the next fiscal year, it’s expected to be roughly $246.2 million, according to interim Finance Director Stephen Dunivent.

By comparison, the city’s adopted budget for next fiscal year is $163.2 million.

There are multiple tiers for both safety and non-safety employees in Costa Mesa, determined by an employee’s hire date.

Among Orange County cities, Costa Mesa’s employees pay some of the highest contributions toward their pension costs, according to city officials.

For instance, under a new contract the council approved in April 2016, the city’s rank-and-file police officers are required to contribute 14% of their pay to their pensions.

Members of the non-public safety Costa Mesa City Employees Assn., who have paid as much as 17.04% of their salaries toward their pensions, will contribute at least 12% throughout the life of a new contract the council OKd in March.

Both groups also brokered raises as part of their contracts.

Negotiations are continuing with the Costa Mesa Firefighters Assn.

Costa Mesa employees are already “paying more than their fair share” toward pensions, Mayor Foley said, and other options need to be looked at in Sacramento — such as implementing a new retirement cap or having the state make additional payments to CalPERS.

“It is my firm opinion that the state Legislature and the governor have got to solve this problem, because the cities cannot do it,” she said. “We cannot balance these requirements and these obligations on the backs of the employees.”

In Councilman Righeimer’s mind, though, any solution needs to include now-retired employees taking a cut on their pension benefits.

“I will debate anybody who says there is some simple way to fix it short of the employees who get the money taking less,” he said. “Until you do that, you can’t fix it.”


The plan: Pay an extra $1 million a year beyond the required minimum, with additional contributions from a pension rate stabilization trust.

Wilson, the city manager, believes unfunded pension liabilities are the greatest budget issue the city will face over the next five to seven years.

The city currently is on the hook for 1,440 retirees and will have to cover 958 active employees. The city’s unfunded liabilities also are affected by 437 transferred and 295 terminated employees, according to city documents.

But under Wilson’s command the city has come up with a two-pronged plan to prepay the city’s liabilities.

The first part requires the city to devote an extra $1 million to pensions each year. The plan was initiated in 2014 and Wilson said it should save taxpayers $54 million in the long term.

Additionally, the city created a pension rate stabilization plan last year that the City Council funded with a $2.5-million contribution. Wilson said the budget feature is essentially a trust that money can be allocated to, earmarking it to pay down pension liabilities.

Councilman Erik Peterson believes changes made about a decade ago to the equation the city uses to calculate pension values is part of the problem. The equation includes the year of retirement when the pension would become available and the percentage of yearly compensation aggregated through a career.

In 2008, the council increased the formula from 2% at age 55 to 2.5% at 55 for non-public safety employees. For public safety personnel, it was increased to 3% at 50, a figure mirrored by other Orange County cities.

This is “a huge problem,” Peterson said.

He and other council members said the state may ultimately have to deal with it. He praised the city for its efforts to combat the pension issue with prepayment but added that it’s like “going down a hole that doesn’t have a bottom.”

The council recently voted to support state pension reform legislation proposed by state Sen. John Moorlach (R-Costa Mesa).

Moorlach has proposed three bills and three amendments to the state Constitution. One of the constitutional amendments would “prohibit public employers from increasing retirement benefits for their employees without two-thirds voter approval.”

Another would give “the Legislature and public pension systems the ability to adjust public employees’ retirement benefit formulas on a prospective basis without impacting any benefits earned.”


The plan: Add about $1 million a year to the pay-down schedule.

A local sales tax increase approved by Fountain Valley voters last year will help pay down the city’s unfunded pension liabilities.

Revenue from the Measure HH 1% sales tax, which the city started collecting in April, will go toward “essential city services” including roads, parks and public safety. That includes pensions for all city employees.

A portion of sales tax revenue will be set aside in a trust just for pensions and doled out at a rate of a little more than $1 million a year over 10 years on top of regular annual payments to help shrink the $65-million unfunded liability the city expects to have next year, said city Finance Director David Cain.

Fountain Valley residents will not see a cut in local services as the city directs more money toward pensions, officials say.

“Part of what we recognized as we moved into the (Measure) HH as a potential solution for the community is without doing something we were going to impact (services),” Cain said.

Over the past five years, Fountain Valley also has instituted a tiered benefit system for new hires and paid off the liability in its “side fund,” the amount of unfunded liability it had when it was in a pooled plan.

Fountain Valley was one of the first cities in Orange County to bring on employees with lower retirement benefits when it started the two-tiered system in 2012, Cain said.


The plan: Commit 4% of revenue greater than budget estimates to help offset increasing pension costs in the next five years.

Laguna Beach officials have made paying down the city’s unfunded pension liability a priority. The city had 362 retirees as of fiscal 2014-15. Its projected unfunded pension liability for 2017-18 is $53 million.

In 2010, the City Council approved borrowing surplus money from Laguna’s own funds, such as its parking fund and street lighting fund, to pay off $10 million in a side fund earmarked for police, fire and marine safety plans. Three years later, it approved higher employee contributions for pensions, ranging from 8% to 12% of salary.

The city expects those strategies to save $25 million in the next 30 years and significantly reduce Laguna’s unfunded liability, according to a letter from City Manager John Pietig to the City Council.

But in a foreboding development for Laguna and other California cities, CalPERS late last year said it would lower its expected investment return rate from 7.5% to 7%.

Increases to Laguna’s overall pension costs, including unfunded liabilities, will be phased in over five years, with the city’s required minimum contribution jumping from $9.1 million in 2016-17 to $11.8 million by 2021-22, according to city statistics.

At a city budget workshop last month, the council agreed to commit 4% of revenue greater than budget estimates to pay all or a portion of that increase in the next five years in hopes of not reaching into reserves or reducing services, city Finance Director Gavin Curran said. The city will evaluate the plan every six months.

“We do everything we can do to address the situation,” Councilman Robert Zur Schmiede said. “With the reserves we have, we’re in a better position than most cities.”

An unfunded liability does not mean failure to fund the plan, said Councilman Steve Dicterow, a lawyer who at one point focused exclusively on pension planning.

“A new liability gets created every year, even if you paid down to zero,” Dicterow said.

He said the only thing cities have control over is salaries they pay employees. But he did not suggest Laguna start cutting pay.

“We are not going to reduce people’s salaries because the pension costs are too large,” Dicterow said. “We’re in a competitive environment with other cities.”


Twitter: @Daily_PilotHD


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MOORLACH UPDATE — Stinky Budget Tactics — June 19, 2017

The world-famous LA Times columnist, George Skelton, uses his pen to address the craziness of budget trailer bills (see MOORLACH UPDATE — Budget Trailer Bills — June 16, 2017 june 16, 2017 john moorlach — which has the link to the clip where my quote can be heard). It is the first piece below.

One of the trailer bills that shows how low the Democrats will go, even retroactively, impacts the current recall effort of a state Senator. Changing the rules in the middle of the game is not a new tactic used by the monopoly party. Consequently, I provided an example or two in my Floor speech in opposition to a law that truly does stink (see

This is not my first George Skelton column. The last time he mentioned me, I was referred to as intriguing and a fiscal watchdog (see MOORLACH UPDATE — Intriguing Dredging — February 25, 2013 february 25, 2013 john moorlach).

He also quoted me during the 2004 Proposition 71 campaign, where I stated the measure was a financial boondoggle (see MOORLACH UPDATE — Double Dippers october 16, 2009 john moorlach or

For more on Proposition 71, see MOORLACH UPDATE — Budget Conference Committee — June 8, 2017 june 8, 2017 john moorlach.

The Orange County Breeze was kind enough to provide my office’s press release on the budget in the second piece below.

Tactics in state budget stink

By George Skelton

You probably thought a state budget divvied up all the Sacramento tax money and parceled it to a zillion programs. It does. But these days it also can do things that past legislators never dreamed possible.

For example, a budget can — and did last week — change recall election rules to protect one of the Democrats’ own and dismantle a constitutionally ensconced, scandal-plagued tax board.

Neither of these moves — and others — had anything to do with budgeting. They had to do with making major policy changes under the guise of budgeting without giving the public much time to think about it.

Credit — or blame — the unintended consequences of reform. Democrats cheer them. Republicans usually curse.

Let’s back up. The Legislature used to embarrass itself nearly every summer by fuming and fussing over a budget, dawdling far into the new fiscal year without a spending plan. It stiffed local governments and private vendors. Seven years ago it stumbled all the way into the fall before finally passing a budget on Oct. 8.

That was enough. Voters got smart. That November, they approved a Democratic-backed ballot initiative to reduce the legislative vote requirement for passing a budget from a gridlocking two-thirds to a simple majority. And they decreed that if it wasn’t passed by June 15, lawmakers be smacked with a harsh penalty: They’d lose their pay.

Legislators have met the deadline ever since. Budgets have been enacted before the new fiscal year begins on July 1.

The dynamics of budgeting have changed dramatically. Not only is it much easier to pass a budget — Democrats can do it alone without buying off Republicans — but a handy side-tool has been refined: the “trailer bill.”

Those are separate bills that trail the budget, ostensibly to implement it. Like the budget bill, they take effect immediately. But unlike the budget, they often are created in the dark without much legislative or public scrutiny.

Trailer bills have been around for many years. But they previously were tools mainly for paying pork to holdouts — usually Republicans — who finally agreed to support the budget. Those purchased votes no longer are needed. But trailer bills still live.

They’re mostly used now by Democrats for slipping through touchy new policy. Stick a few token bucks in a bill and it becomes part of the budget. It sails through the Legislature on a partisan vote.

“These bills are clever, they’re Machiavellian and too cute by half,” Sen. John Moorlach (R-Costa Mesa) complained during the Senate budget debate.

The trailer bill that really angered and surprised Republicans was one designed to protect freshman Democratic Sen. Josh Newman of Fullerton from a recall attempt.

The bill, supported by Gov. Jerry Brown, stretches out the recall process and practically ensures that voters won’t be allowed to cast ballots until the June 2018 primary election. That will guarantee a much bigger voter turnout than what there’d be at a lightly attended special recall election later this year. Democrats historically do better with larger turnouts.

The sneaky bill stinks. But so does the attempted recall. Ostensibly it’s to oust Newman for voting to raise gas taxes and car registration fees to finally fund repair of crumbling highways. Sorry, but making one tough vote is not a valid reason for recalling a lawmaker. Anyway, the real Republican goal is to eliminate the Democrats’ Senate supermajority.

Signature collectors are falsely telling people they can sign a recall petition and “stop the car tax.” Baloney. That would require a separate repeal initiative.

But Democrats sullied themselves by tucking their recall-protector into a broad-sweeping “state administration” bill and barely mentioning its true purpose during the Assembly debate. What’s more, another part of the measure could lead to development of a new veterans’ cemetery in Southern California, making a “no” vote potentially toxic politically. Republicans found that in particular poor taste.

“It broke my heart to see this bald-faced political move,” said Assemblyman Dante Acosta (R-Santa Clarita), whose military son was killed in Afghanistan. “If you want to get my ire up, you’ll do this kind of thing.”

In the other house, Senate leader Kevin De León (D-Los Angeles) asserted that Newman “is being threatened by one of the most cynical, shameless and fraudulent abuses of California election law.”

Democrats are afraid that if the GOP pulls this off, the party will keep using the strategy to whittle away at the Democratic majority in more low-turnout recalls. So they’re misusing the budget to outflank the right.

Republicans can’t expect good government tactics when they’re engaged in cynical opportunism.

Good government, however, is justification for eviscerating the obscure state Board of Equalization. Its demise is long past due and has been discussed for decades. The Legislature finally acted after a highly critical state audit reported the misuse of money and staff, and political shenanigans.

Completely abolishing the five-member elected board would require voter approval of a constitutional amendment. So the simple trailer bill — stripping out 90% of the board’s duties and giving them to a new state tax department — is the next best thing. And Brown will sign it.

“This is 90 years too late,” Sen. Mike McGuire (D-Healdsburg) asserted during the debate, citing a history of scandal.

“Whistle blower after whistle blower has called,” said Assembly Budget Committee Chairman Phil Ting (D-San Francisco).

For the record, the state budget will total $183 billion.

And it has morphed into a Magic Marker for rewriting all manner of public policy, a legislative game change.

John Moorlach states California Budget Act 2017-18 disregards future


Governor Jerry Brown has openly stated that a recession is coming and that budget cuts are inevitable. So I began my comments on the final budget acknowledging the uncomfortable fact that – at $125 billion – this is California’s largest general fund budget ever. It is difficult to reconcile the fact that a future deficit is a foregone conclusion while we quickly ramp up spending. Now would be the prudent time to put a little extra to the side and draw down our debts.

I currently support the $6 billion pension pre-payment plan, but I had to point out that the taxpayers aren’t getting a great deal. A large pre-payment like this should be incentivized by the CalPERS board, which could result in hundreds of millions of taxpayer dollars saved down the road. Unfortunately, the CalPERS board – largely made up of union members – doesn’t seem to possess the financial sophistication needed to make such a deal.

Proposition 56 has also been abused. Plain and simple. The drafters of this measure certainly had a different idea in mind with where the money would be spent. Instead, this budget plan siphons away a majority of the funds from a $2 per package tobacco tax increase. Proposition 56 promised doctors better funding to remain in California and provides funds for children with dental needs. It’s a bait and switch. This isn’t right.

The trailer bills we have been voting on are abusive to the process of good government. They are “gotcha” bills that create victims unawares by switching the rules on public agencies overnight. It happened to us in Orange County. It shouldn’t happen again.

This is the largest state budget in history at a time when the state should be exercising fiscal prudence in light of oncoming economic challenges. Let us get in front of the next downturn so we can maintain current services to Californians.

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


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MOORLACH UPDATE — Budget Trailer Bills — June 16, 2017

The Senate approved the 2017-18 State Budget yesterday afternoon and addressed 14 of the 15 budget trailer bills on the file (there are several other trailer bills still being negotiated for votes next week). My Floor speech on AB 97, the Budget Bill, can be seen at

Now that I’ve been up in Sacramento for more than two years, I’m sensing a pattern.

The Governor lets the legislators play in the sandbox with writing, presenting, and voting for their cute little bills. While that distraction is occurring, he waits calmly like a peregrine falcon, to swoop down in the month of June, when he can pounce with his legislative agenda, shrouded in budget trailer bills.

It’s a brilliant strategy. These bills are given the cover of the budget-mania and frenzy that occurs before June 15, the due date of the budget. With everyone scurrying around with their own legislative efforts, he slips in big agenda items and gets them approved. Better yet, they are effective immediately, on July 1st. And, he will sign these bills.

The problem is that this strategy has flaws. One, it surprises certain constituencies. One vivid example is SB 89 in 2011 (see MOORLACH UPDATE — R&T Code Sec. 97.70 — November 15, 2011 november 15, 2011 john moorlach). With one trailer bill, the state stole $73 million from the County of Orange and then some. The bill showed up on a Monday and was voted on the next day, without any time to respond with any voices of opposition. The sad part is that this is technically legal, but it is also highly questionable and iniquitous.

The second is that many of the trailer bills have nothing to do with the budget, but are focused on policy. Major policy changes are crammed through like a drive-by shooting. It’s unconscionable. But, the monopoly party can do it. Such is the joy of controlling the legislature and the Governor’s mansion.

The LA Times provides two examples in their non-dead-tree version below. The first piece deals with a massive change in the State Board of Equalization. I spoke against the bill, stating two Constitutional sections that were being violated and one Government Code Section that requires maneuvers like this to go through the Little Hoover Commission (see But, a budget trailer bill is the opportunity to pounce and make the changes, effective in two weeks. Unbelievable.

In speaking against another trailer bill, I noted that the State Board of Equalization has had a majority of Democrats for as long as I can remember. This should show everyone what happens to agencies run by Democrats for decades–they need reform!! So I congratulated my colleagues with a back-handed compliment, that as Democrats, they are reforming something they helped cause.

The second piece deals with Proposition 56. Although I opposed this tax increase, it has been mind-boggling to watch the Governor take the proceeds and apply them to budget items that were not the intent of this ballot measure’s supporters. But, the Governor can do it because he can do it. But, it’s wrong.

The Orange County Medical Association has been very disappointed with the Governor taking $50 million that was purposed to fund University of California medical school residencies. The annual budget already provides $50 million per year for this expenditure, as we need to keep medical students in California.
Instead of doubling this critical need, the Governor took the additional $50 million and applied it elsewhere.

This blatant repositioning was discussed in the Senate’s Budget and Fiscal Review three-member Subcommittee One, which oversees the Education component of the budget, and where I sit as the lone Republican. When this item came up, it was interesting to hear the rationalizations and justifications (see The bottom line? The Governor can steal it fair and square. To the amazement of the Legislative Analyst’s Office and me.

Those who have been under the Dome for many years have become amazed with the ever increasing number of trailer bills with each passing year. And they are about policy, not budgets. So, watch the skies in June, my friends, it’s the hunting season for peregrines. And odds are you will be the meal.

California Legislature votes to strip key powers from state tax board hit by scandal

Patrick McGreevy

The state Legislature on Thursday voted to strip the state’s scandal-plagued tax board of most of its duties and powers, sending the governor a bill that would transfer taxpayer appeals hearings to a new office of administrative law judges.

The state Board of Equalization has been hit by a series of scandals, including audits showing that it misallocated hundreds of millions of sales tax dollars to the wrong accounts and that elected board members opened field offices and transferred workers without authority to do so.

Sen. Holly Mitchell (D-Los Angeles) said the measure will make structural reforms to address "significant issues of mismanagement and misuse of budget resources and disregard of directives of this Legislature."

The measure, which also shifts oversight of sales and excise taxes to a new collection office, was sent by the Senate and Assembly to Gov. Jerry Brown, who has told lawmakers he supports the change.

Republicans including Sen. Jeff Stone of Murrieta said the action takes away an important process for small businesses that want to appeal tax judgments. Stone said the legislative maneuver used to pass the change was an "abuse" of a process not meant to make sweeping policy change.

Sen. John Moorlach (R-Costa Mesa) said the bill violates the state Constitution and policies restricting how the Legislature can make major structural changes to state departments. That legal issue could be grounds for a ballot measure to restore the board’s powers, said board member George Runner.

In the Assembly, Budget Committee Chairman Phil Ting (D-San Francisco) said having three panels of administrative law judges hearing appeals will greatly speed up the process, which he noted took 15 years for one case.

“No taxpayer should have to wait 15 years to get their day in court,” Ting said.

Republican Assemblyman Jay Obernolte of Big Bear Lake said having elected board members hear tax appeals allows voters to get help from someone independent from the state bureaucracy and hold officials accountable.

“This bill will eliminate that very important taxpayer protection,” Obernolte said.

California’s tobacco tax spending plan, a major sticking point in the state budget, easily clears Legislature

Melanie Mason

The squabble over how to spend around $1.3 billion in new tobacco tax revenues in California was one of the most prolonged standoffs of the budget season. But on Thursday, the compromise plan easily cleared the Legislature.

Under the spending plan, $465 million will go toward increased payments for doctors and dentists who see patients in the Medi-Cal program. Those healthcare providers had envisioned getting more money when they backed Proposition 56 last year, but Gov. Jerry Brown had resisted upping reimbursements at all for most of the budget season.

Democratic lawmakers and some Republicans sided with the medical groups, arguing that voters had backed the tax in order to expand access to Medi-Cal and that higher payments to doctors and dentists would encourage them to participate in the program.

But while Democrats appeared satisfied by the compromise — which also included $50 million to increase payments to family planning providers such as Planned Parenthood — most Republicans said more money should have gone to increase reimbursement rates.

"The will of the voters is being usurped by the governor," state Sen. John Moorlach (R-Costa Mesa) said.

In a subtle jab at Republicans, who largely did not back the $2-per-pack tax hike last fall, state Sen. Richard Pan (D-Sacramento) thanked those of his colleagues that "endorsed and campaigned" for the initiative. He called the higher payments in the spending plan "a substantial step forward."

Still, some Democrats were not fully enthusiastic with the final figure. Assemblyman Jim Wood (D-Healdsburg) said he was "disappointed" that more money was not going to physician and dentist payments but said "less than half a loaf is better than no loaf at all."

The spending plan passed the Senate on a 25-11 vote and the Assembly on a 65-8 vote.


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MOORLACH UPDATE — 2017-18 Budget Deadline — June 15, 2017

Today we vote on the state’s Budget. Session has been moved back to 12:30 p.m. The Republican Senate Caucus will meet to brief soon. And, another budget with the wrong priorities will be passed, along with the accompanying trailer bills, sometime in the late afternoon.

AB 100 deals with the supplemental payment to CalPERS (see MOORLACH UPDATE — A Better Way — June 13, 2017 june 13, 2017 john moorlach).

I have had a high regard for David Crane for many years. The first piece below is from Fox & Hounds, where he continues the public debate that he and I have been enjoying.

Yesterday afternoon, CalPERS slammed the door on me with regards to my request for a prepayment discount (see MOORLACH UPDATE — Obtain Prepayment Sizzle — May 17, 2017 may 17, 2017 john moorlach). The CalPERS Board, which is union dominated, lacks the creativity and understanding of those in the financial and investment industry. That’s what happens when you put public employees on a board with only one objective: more. But, that more is for the unions.

In Orange County, the retirement system’s board of nine members is divided between union and public members, with the County Treasurer being the deciding vote. This board has more business savvy and has been open to ideas that saved its largest plan sponsor more than $100 million.

Consequently, Governor Brown comes close to what we’ve done in Orange County, but just misses the real benefits. Just like his methodology of addressing the retiree medical liabilities. If he followed the OC model, the state could reduce its unfunded liability for this obligation by $50 billion!

It kills me to see financial amateurs get so close, claim they’ve done the best they could, and miss the bull’s eye.

Lip service may be good for the masses, but for those in the know, it’s infuriating.

David Crane seems to be hung up on the definition of what a payment is. Who cares about the funding source?

But, if there is no mechanism in the trailer bill to apply this toward any future year’s annual required contribution payment, then I’ll be convinced that the CalPERS board members are over their heads and the Department of Finance can’t shoot straight. I’ll be reviewing the bill language (AB 100) today, as the bill was published late in the night on Tuesday during this budget season madness. It should be heard next week.

The second piece, front page Sacramento Bee, is also about the budget. The disheartening fact about Sacramento is that it is a union town. There are Republicans and the Union Party. When I present bills to address fiscal issues, it’s usually union representatives that argue in opposition. And, because they own the monopoly party, my bills get voted down. So, my attitude is reflected in this piece (also see MOORLACH UPDATE — There Ought Not Be A Law — April 23, 2017 april 23, 2017 john moorlach).

For levity, a repeat of yesterday’s humorous moment is provided by Capital Public Radio (see MOORLACH UPDATE — Bureau of Cannibals Control — June 14, 2017 june 14, 2017 john moorlach).

One Last Plea to Stop the Pension Loan

David Crane

By David CraneLecturer and Research Scholar at Stanford University and President of Govern for California

Dear Legislators:

In my essay the other day I provided an alternative to Governor Brown’s pension loan — actually pay down pension debt.

You could do that by offering to redeem future pension payments for cash today. Provided the amount you pay is no greater than the present value of those future pension payments using the discount rate CalPERS uses to present value those payments, then you would actually pay off debt. If you wanted to save the citizens you serve even more money, you could start by offering less than present value.

Ideally such a pay-down would not be paid for with borrowed funds but if you insist on borrowing, then at least swap the floating rate loan from the special fund into a fixed rate loan so you actually know your cost and don’t subject citizens to floating rate loan risk. Together with the redemption outlined above, a fixed rate would lock in savings equal to the difference between the loan rate and the discount rate.

You should understand that the path proposed by Governor Brown and embraced by Treasurer Chiang and Senator Moorlach–a path you are about to embrace–is no different than the path mortgage lenders induced borrowers to take before 2008: i.e., a “teaser” low interest floating rate loan the proceeds of which are invested in assets (houses in that case) expected to grow at a higher rate and earn big profits for borrowers. Just see the stunning language from Brown’s budget below. That language goes beyond representations made by mortgage brokers and is eerily similar to assertions made by the state when it enacted SB 400 in 1999 (eg, “will not cost a dime”).

Public officials should not lead citizens down similar paths. You should actually pay down pension debt or you should not proceed with the current proposal.

David Crane

State budget has perks to help unions organize new members

Democrats add two union-protection provisions to the 2017 state budget. Labor groups see right-to-work laws gain ground across the country and have some pushback in California.


New California government workers will hear from union representatives almost as soon as they start their jobs under a state budget provision bolstering labor groups as they prepare for court decisions that may cut into their membership and revenue.

Unions would gain mandatory access to new employee orientation sessions in schools, cities and in state government through one of two labor-friendly provisions that lawmakers inserted into the state budget last week without much debate.

The second provision bans public agencies from releasing the personal email addresses of government workers, creating a new exemption in the California Public Records Act. Those email addresses are basic information that could be used in anti-union campaigns.

Both measures were discussed by the Legislature last year, but dropped when the Supreme Court deadlocked on a lawsuit that would have banned unions from collecting fees from workers who don’t want to join labor groups.

That stalemate left in place California’s practice of allowing unions to charge fair-share fees to workers who benefit from representation, but don’t pay full dues.

Now, two more so-called right-to-work lawsuits are jockeying to reach the Supreme Court where newly appointed Justice Neil Gorsuch may tip the balance against fair-share fees.

“We may get a decision that eliminates various forms of union security that prevent free riders, so we’re trying to find an alternate message,” said David Rosenfeld, a Bay Area labor attorney.

The measure inviting unions to participate in new employee orientation will give labor groups an opportunity to make their case just as workers begin their jobs.

Many public agencies already allow unions to brief new workers. The budget bill would make that a standard practice across the state.

Its supporters cast it as way to ensure that public employees are well informed about their rights, and about the general workplace environment of their new offices.

“We want a better-trained and well-informed workforce,” said Assemblyman Jim Cooper, D-Elk Grove, who carried the bill last year. “It really wasn’t about the unions so much as it was just an orientation.”

Gov. Jerry Brown’s administration favored the measure, which allows government agencies to negotiate with unions over what kind of access labor groups would have to new employee orientation sessions.

Republicans voted against the provision at budget hearings over the past week.

“I don’t think the unions need to be involved in orientation. It’s that simple,” said Sen. John Moorlach, R-Costa Mesa. “It’ll be a rare day when I vote for a bill that gives (unions) some kind of advantage.”

The second provision adds the personal email addresses of public employees to a list of privacy exemptions in the California Public Records Act. The exemption is to be included in an existing law that compels public agencies to disclose that information to union representatives.

The California Public Employees’ Retirement System has received public records requests seeking personal information about its beneficiaries, including their personal email addresses. CalPERS has denied those requests, said spokesman Wayne Davis.

Open government advocates at the First Amendment Coalition and the California Newspaper Publishers Association were surprised to see the provision surface.

They’d watched a similar provision move forward last year and stalled it. They wanted to wait for a decision from the state Supreme Court in a lawsuit that argued that the public should have access to emails and text messages that public officials send from personal devices if the content is relevant to their work in government.

In March, the Supreme Court sided with open records advocates in holding that those records are public even if they’re sent from personal devices.

Last year, the publishers’ group opposed the privacy exemption for public employee email addresses. That information, said Jim Ewert, general counsel, might have helped citizens piece together important information that public officials attempt to hide by working from personal devices.

“This year, unbeknownst to me, this language just appeared and I’m not sure how that happened,” he said.

Now, with the state Supreme Court ruling favoring access to the content of those messages, Ewert says the actual email addresses are less important. The ruling requires public agencies to search personal devices and email accounts for information that could be relevant to citizen watchdogs and the new legislation does not contradict the court decision.

“I don’t think it would render a substantial or significant amount of public records inaccessible because it makes clear that if the email is used for public business, it’s subject to disclosure,” said David Snyder, executive director of the First Amendment Coalition. “It probably in the broad scope of things doesn’t do great harm.”

Fair-share fees top 99 percent of full dues at some unions. If they’re banned, an anti-union group might solicit union members with messages telling them they could have the benefits of union representation without paying union dues, according to union advocates.

Paul Secunda, director of the Labor Law Employment Program at Marquette University, said other Democratic-leaning states might adopt similar measures if the Supreme Court one day strikes down fair-share fees.

“I think you’ll see that in more progressive states similar types of innovative laws to try to soften the blow potentially of one these types of cases,” Secunda said.

Twenty-eight states have so-called right-to-work laws with Kentucky and Missouri becoming the most recent ones to ban fair-share fees.

Moorlach and Assemblyman Matt Harper, R-Huntington Beach, submitted a right-to-work bill to the Legislature this year. It died in committee. At an April hearing, they argued that fair-share fees undermine the free speech rights of workers who disagree with the political stances of California’s Democratic-leaning unions.

“You have a First Amendment problem,” Samuel Han, California director for the Freedom Foundation, a group that wants to break the “stranglehold” of public sector unions.

Union membership has declined somewhat in states that recently blocked mandatory union fees, but it has not plummeted. Michigan, for instance, became a right-to-work state in 2013 and union membership has edged down from 16.3 percent of the state’s workforce to 14.4 percent of workers, according to the Bureau of Labor Statistics.

Indiana banned fair-share fees in 2012 and union membership has increased there from 9.1 percent of the state’s workforce that year to 10.4 percent in 2016.

The right-to-work laws are “a stumbling block, but labor isn’t going anywhere,” Secunda said.

Adam Ashton: 916-321-1063, @Adam_Ashton. Sign up for state worker news alerts at

California Senate Budget Committee Cracks Up Over Bureau Of ‘Cannibals’ Control

Julia Metric

If you’re a reporter covering California’s landmark cannabis bill, chances are you tuned in for a Senate Budget Committee hearing this week.

After several hours of public comment on many other bills, the focus turned to legislation that would align the state’s rules on medical and recreational marijuana.

That is, cannabis.

Soon it was Republican John Moorlach’s turn to pose a question to Democratic Committee Chair Holly Mitchell.

He asked senators to go to the committee report and look at the bottom of page one.

"It refers to a bureau," said Moorlach. "And I’m kind-of curious…"

"The bureau of cannibal – cannabis – control?" clarified Mitchell.

"It says ‘cannibals’ control," replied Moorlach.

"It’s a typo and you knew it was a typo!" countered Mitchell, laughing.

"Bureau of C-a-n-n-a-b-i-s Control. Yes, you knew," insisted Mitchell as laughter rippled through the chamber.

"Let’s get to your question," added Mitchell, trying to re-direct the hearing.

The exchange sounded like the dawning of the Age of Cannabis.


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MOORLACH UPDATE — Bureau of Cannibals Control — June 14, 2017

Happy Flag Day greetings from Sacramento!

One of the sixteen trailer bills on the agenda of yesterday’s Senate Budget and Fiscal Review Committee meeting was AB 110, Cannabis Regulation. Being a detailed reader from my C.P.A. practice days, I can spot typos rather quickly. In fact, it’s a curse. While reading the Committee Report, I found a fun one. I even looked it up just to see if I had not learned the plural of the word cannabis. Well, in the day of spell check, this one slipped by (since the word was spelled correctly) and I brought it up in a fun manner. AP reporter Jonathan Cooper tweeted it out, stating I had found an "epic typo" (see

The Chair, Sen. Holly Mitchell, tried to calm things down, but it didn’t help much (see I used it as a teaching moment about the problem with the speed of which we receive trailer bills. Even the consultants who prepare the briefings are not catching simple typos, which challenges our confidence in the budget process as these trailer bills are often slapped together at the last moment not looking like the issues we debated in previous budget hearings. The moment was also caught by Leafly in the first piece below.

While I was tied up in Committee, the OC Register called. I could not return the call, as I was debating cannabis regulation and a blatant abuse of the recall law that will be retroactive should the Governor sign AB 112, as he is expected to do. The nonsense that gets shoved through using trailer bills just makes me sick to my stomach. Especially the unconstitutional power plays. But, I digress.

More than 60 percent of OC voters do so by mail. Reducing the number of actual voting locations makes great fiscal sense. Unfortunately, the trend is not being observed and the Board of Supervisors did not catch the Orange County Registrar of Voters’ vision yesterday.

I voted for the bill that allowed for Neal Kelley to make his presentation and I believe it reduces fraud. I applaud him for his acknowledging the facts of the trend in how constituents vote and managing accordingly. Some visionaries suffer the fate of being a little early. Although I could not return the call, I do get a mention as the closer of the second piece below.

California Lawmakers Rush to Set Cannabis Regulations


As the launch of California’s adult-use cannabis market looms—sales are set to begin Jan. 2, 2018—lawmakers are scrambling to put in place rules to regulate the industry and ensure it functions smoothly.

On Tuesday afternoon, a California Senate committee took the latest step toward that goal, voting 16–1 in support of Assembly Bill 110. It’s an enormous bill of provisions to govern the state’s medical and adult-use programs, covering everything from environmental and licensing matters to the exemption of cannabutter from the Milk and Milk Products Act of 1947.

While the measure earned broad bipartisan praise from members of the Senate Budget Committee, even some supporters questioned the quickness with which the changes are being pushed through the Legislature. Pointing out a typo where “cannabis” had been misspelled “cannibals,” Sen. John Moorlach said at the hearing that the error “indicates the pace” at which the bill is progressing.

“We are moving awfully fast,” he said.

But as committee chair Sen. Holly Mitchell (D-Los Angeles) pointed out, the alacrity of the bill—and its wide-ranging nature—are the product of nearing deadline.

“We go live on Jan. 2, 2018, regardless,” agreed Sen. Mike McGuire (D-Healdsburg) at Tuesday’s hearing. “We are building the airplane as we’re flying it. And we are going to make some mistakes.”

The bill has earned the support of many cannabis industry associations, labor unions, and even the California Police Chiefs Association, which has only recently come to support legal cannabis.

The full text of AB 110 is available online. If you plan on reading it all, though, clear your schedule. The state Legislative Counsel’s “digest” version of the bill is itself more than 6,000 words. The full text is nearly 10 times that.

We at Leafly digested the AB 110 a bit further. Here some key takeaways:

Merging Medical and Adult-Use Systems

Perhaps the biggest change that AB 110 would make is to eliminate California’s medical marijuana law, the Medical Cannabis Regulation and Safety Act (MCRSA). It’s part of a plan to merge the state’s medical and adult-use programs into one, which would be overseen by the Bureau of Cannabis Control. While separate rules and regulations would still apply for medical and adult-use cannabis, both would be regulated under a new law, the Medical and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA, for those of you who like acronyms).

To that end, AB 110 would iron out some differences in license types between the state’s current medical and adult-use laws. With some exceptions, it would also “generally impose the same requirements on both commercial medicinal and commercial adult-use cannabis activity,” a fix aimed at regulatory efficiency.

Testing laboratories would be able to test both medical and adult-use cannabis under AB 110, but it’s less clear how it would affect dispensaries. A Los Angeles Times report on Monday noted that recent changes to the bill “would allow pot shops to sell both medical and recreational weed”—but on Tuesday, observers quickly pointed out that it still includes language requiring “separate and distinct” premises for businesses that hold multiple licenses.

Lab Testing Cannabis

Beginning next year, California will for the first time require that cannabis be tested for pesticides, mold, mildew, and other contaminants. We knew that part already, but AB 110 begins to flesh out how the system will work.

To ensure consumers know what they’re getting, the bill explicitly prohibits the use of banned pesticides and creates a state program to certify organic cannabis products. It also sets up protocols designed to ensure products are tested fairly and accurately.

Under AB 110, cannabis distributors would store cannabis on their premises. From there, testing lab employees would be required to obtain samples and transport those samples back to the lab. The bill would also create a quality assurance monitor, who would be employed or contracted by the Bureau of Cannabis Regulation.

Even after testing begins, some untested products would still be able to be sold under the bill. Those products would need to be labeled as “untested,” and sales would only be allowed for a period determined by the bureau. It’s a move designed to prevent delays or interruptions in product availability, which has occurred in some other states after imposing new testing standards.

Environmental Safeguards

Many estimates peg cannabis as California’s top cash crop. But historically that yield has come with environmental consequences, including clear-cutting forests and polluting surface and groundwater. Provisions in AB 110 aim to minimize those impacts.

Under the bill, all cultivators would be required to identify the source of water they use. And if the state Department of Food and Agriculture determines there to be adverse impacts related to cultivation, it would have the authority to limit the issuance of unique identifying tags, which are required for all legally grown plants.

The measure would also make it a felony to grow or process cannabis “where that activity results in a violation of specified laws relating to the unlawful taking of fish and wildlife.”

Other Changes

The bill would also:

  • Require infused edibles to carry a universal symbol to ensure easy identification
  • Require that cannabis and cannabis products be placed in an opaque package before leaving a retailer’s premises
  • Establish that an open package of cannabis in a vehicle qualifies as an “open container” infraction
  • Allow for special events and public consumption permits, issued at the discretion of the bureau
  • Redefine “volatile solvent” under the law to mean “a solvent that is or produces a flammable gas or vapor that, when present in the air in sufficient quantities, will create explosive or ignitable mixtures.” (California law makes it a crime to manufacture cannabis concentrates using volatile chemicals without a state license, but some had questioned whether carbon dioxide (CO2) fell under that definition.)
  • Require cannabis ads on the internet include the licensee’s license number
  • Remove a provision that currently limits the issuance of state cannabis licenses to California residents only
  • Require retailers to notify officials within 24 hours of a security breach
  • Require that public safety—as opposed to patient or economic interests—be the first priority in regulatory decisions
  • Define information on a doctor’s recommendation as medical information under the Confidentiality of Medical Information Act, which applies to state agencies
  • Authorize three or more “natural persons” with Type 1 or 2 licenses—which are granted to small-scale growers—to form a cooperative to cultivate, sell, and market cannabis products

Orange County supervisors reject new, cost-saving voting system

By mwisckol

Orange County supervisors rejected a sweeping overhaul of the county’s voting system on Tuesday, June 13, despite a report from Registrar of Voters Neal Kelley saying more than $10 million would be saved in replacing antiquated voting machines.

Kelley’s proposal called for sending every county voter a mail ballot and replacing the approximately 1,000 precinct polls with 150 “vote centers.” The vote centers would open for 10 days before the election for those wanting to vote in person and those wanting to drop off ballots rather than mail them.

With people increasingly voting by mail – 61 percent of county voters are permanent vote-by-mail voters – the approach proposed by Kelley is growing in popularity. Colorado and Washington have adopted similar systems, and Sacramento County recently approved the change. Twelve other California counties are expected to consider the move within the next year.

But with a host of new election laws taking effect statewide, some Republican leaders say they’re worried about increased voter fraud and want to put the brakes on additional changes for the time being.

County supervisors, all Republicans, unanimously denied Kelley’s request without discussion.

Supervisor Todd Spitzer, who made the motion to reject the proposal, later explained his reservations. “The key to me is to see how the other mandated systems work and then decide how to move forward,” he said, echoing sentiments expressed earlier this month by county GOP Chairman Fred Whitaker.

“I have real concerns about voter fraud,” Spitzer said.

There are two big state-mandated changes for 2018. For the first time, citizens will be able to register to vote on Election Day and there will no longer be restrictions on who can gather and deliver mail ballots. In the past, only relatives could drop off someone else’s mail ballot in person.

California Secretary of State Alex Padilla said he was “surprised … shocked and deeply disappointed” by Orange County’s decision.

“Supervisor Spitzer sounds like (President) Donald Trump in citing voter fraud,” said Padilla, a Democrat. “Study after study, report after report, investigation after investigation show there’s virtually no voter fraud. He ought to be ashamed. This model for holding elections has been proven to work. Turnout goes up and cost goes down.”

Kelley has said the vote-center approach would provide greater safeguards against fraud. A key reason is each center would have a real-time, statewide voter database that would show if a prospective voter has registered or voted elsewhere. Voters registering or casting a ballot for the first time in the state are required to show identification, although others are not.

Buying such equipment for 1,000 precincts polls is probably not cost effective, Kelley has said.

Under the vote-center system, county voters could have cast a live ballot – or dropped off their mail ballot – at any of the county’s vote centers or at one of 93 secure drop boxes that would open a month before Election Day.

Kelley’s report to supervisors says the current system, put in place in 2003, had a 10-year life expectancy. Hardware is “increasingly failing,” the report says, needing more maintenance and software is outdated. Additionally, some replacement parts are no longer available.

Supervisors directed Kelley to return with a proposal to replace machines for the current 1,000 polling places. That could cost as much as $40 million, while new equipment for the vote-center approach would have topped out at $14 million, according to Kelley’s report.

Spitzer didn’t rule out supporting the vote-center model once mandated changes have been put in place and their consequences known. He said he’s not sure there’s a need to replace the aging machines in time for the 2018 elections.

“I’m not convinced we can’t continue to use our existing system,” he said.

Kelley’s offered only a brief comment after supervisors’ vote: “I respect the board’s decision and we’re prepared to move forward as directed.”

Kelley, former head of both the state and national elections officials organizations, has been widely acknowledged for the innovations and efficiencies he’s introduced to his office. He also helped draft the language of the state law allowing counties to establish vote centers.

Many Republicans believe same-day voting and the change in who can collect mail ballots will benefit Democratic turnout. Newport Beach’s Mike Schroeder, a former state GOP chairman, is among them, but he has said the vote-center approach could benefit the GOP because Republican voters are more likely to cast mail ballots than Democrats, and the center would increase mail voting.

State Sen. John Moorlach, R-Costa Mesa, has also expressed support for Kelley’s proposal.


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MOORLACH UPDATE — A Better Way — June 13, 2017

In my C.P.A. practice days, if a client wanted to do a transaction that would be fraught with negative repercussions, the easy answer would be to advise against the deal. The better answer would be, "I see where you are trying to go, but the route you are considering will be detrimental to your financial well-being, let me show you a better way."

On the proposed additional payment to CalPERS, we have a debate about the terms and the structure. That’s great! But, do we have better solutions? Do we have someone proffering a better approach?

California Political Review provides a rebuttal to the editorial that I co-authored with State Treasurer John Chiang.

The subtle nuance in this debate is as follows:

1) Is it appropriate to use funds in an existing cash fund, that is not earning even one percent on its investments, to pay down a debt that is costing nearly 7.5 percent?

2) Likewise, is it appropriate to borrow to invest?

I believe that most of what the piece’s author has written is accurate. But, all it does is complain. There are no recommendations on what should be pursued.

So, allow me to respond. First, putting additional funds into the pension system will be inferred by the plan as a supplemental payment, and thus a reduction of the unfunded actuarial accrued liability. The only other alternative is for CalPERS to set it up as a separate fund within the entire plan. But, it would be subject to the same investment results as the entire plan. Consequently, stating that it is not a payment to the plan is not correct.

Borrowing to invest is another topic. And it is a big one. Mortgaging your home to invest comes with obvious risk. Consequently, I advise against it. And, I’ve consistently opposed pension obligation bonds over the last twenty-three years of my life in public service. As a reminder, they were abused by the County of Orange, by management and Bob Citron, and it was a component of the bankruptcy legacy.

But, borrowing short term, from yourself, is a different situation. As I’ve stated in previous UPDATEs, a one-year structured note program that I helped craft back in 2006 has saved the County of Orange more than $100 million over the last eleven years (so I know I easily paid for my salary, and then some).

What the Department of Finance is proposing is a medium-term note, paid for from the Proposition 2 rainy-day fund, over a period of time.

I would prefer two additional components. The first is that the loan period be reduced to a much shorter time frame. And that CalPERS should incentivize the supplemental payment. Therefore, I will insist on these two points during the negotiations that I am permitted to participate in.

The big issue we all agree on is whether the nation is about to approach a massive market correction. I spoke on this earlier in my early piece on this topic (see MOORLACH UPDATE — Obtain Prepayment Sizzle — May 17, 2017 may 17, 2017 john moorlach). We don’t need to have a major investment loss after the funds are deposited with CalPERS. On this, we are unanimous.

Now, where are the solutions? In the best of all worlds, the Governor would just add the Proposition 2 debt payment increment of $427 million per year towards the annual CalPERS contribution. He gets dollar-cost-averaging, the benefit of shortening a long-term loan, and a method of reducing the largest unrestricted net deficit in the nation.

The good news is that the Governor is looking at an idea to address the pension alligator. This opportunity should be vetted and crafted to the maximum benefit of the taxpayers, the plan sponsor, and the plan participants.

Just saying "no" does nothing. If you don’t have a better way, then you’re not helping. And, this state desperately needs help.

Jerry Brown’s Pension Loan Does NOT Pay Down Pension Obligations

By Stephen Frank

Jerry Brown is a liar and a thief—and those are the nice things that can be said about him. He is stealing $6 billion from a reserve fund meant for dozens of agencies. Brown is GIVING it to the collapsing CalPERS—with NO demand the money be paid back. At the end of the year those agencies will need that money to fund their legal activities. Now we find out that the $6 billion—plus the $500 million just given to CalPERS in the budget, does not pay down the $1.4 trillion in obligations.

“No, Brown’s proposal is not like using discretionary cash to pay off debt. Just read the language from the proposed bill: “This bill would require the Controller to transfer up to $6,000,000,000 from the Surplus Money Investment Fund and other funds in the Pooled Money Investment Account … to the General Fund as a cash loan, the proceeds of which would supplement the state’s employer contributions for the 2017–18 fiscal year.” As that language makes clear, Brown does not propose to use discretionary cash to pay down pension obligations. Instead, he proposes to borrow in order to boost assets that are invested to meet pension obligations. There is a big difference.

Corruption? Of course. Theft? Of course—an economic disaster for California by a very confused Guv Brown. Get your popcorn and watch the collapse.

Jerry Brown’s Pension Loan Does NOT Pay Down Pension Obligations

David Crane, Medium, 6/12/17

In an opinion piece on June 8, State Treasurer John Chiang and State Senator John Moorlach provide an invalid analogy in support of Governor Jerry Brown’s proposal to borrow money in order to boost pension contributions. They write:

“[Brown’s] proposal is just as fiscally prudent as a family deciding to use some of its discretionary cash to pay off an expensive credit card.”

No, Brown’s proposal is not like using discretionary cash to pay off debt. Just read the language from the proposed bill: “This bill would require the Controller to transfer up to $6,000,000,000 from the Surplus Money Investment Fund and other funds in the Pooled Money Investment Account … to the General Fund as a cash loan, the proceeds of which would supplement the state’s employer contributions for the 2017–18 fiscal year.” As that language makes clear, Brown does not propose to use discretionary cash to pay down pension obligations. Instead, he proposes to borrow in order to boost assets that are invested to meet pension obligations. There is a big difference.

Think about it this way: Assume Jerry Brown personally owes $100 in pension obligations but presently has set aside only $65 with an investment manager to meet the future payments due on those obligations. Brown proposes to borrow $4 from a family member and contribute that $4 to the investment manager in the hope that investment earnings on that $4 will offset some of his future pension costs. In doing so, Brown wouldn’t be paying down any portion of his $100 in pension obligations. Instead, he would be borrowing in order to boost assets from $65 to $69 in the hope that the difference between what he pays on the borrowing and what his investment manager earns will reduce his future pension costs. If instead Brown wanted to use the $4 to actually reduce pension obligations he would offer payments to pension beneficiaries in exchange for extinguishing some of their future pension payments at a discount.

As frugal as Jerry Brown is, if his own money were at risk I can’t imagine that he would not grasp the difference between (i) using his own discretionary cash to pay down his obligations and (ii) borrowing from a family member to speculate on stocks in the hope of reducing future costs relating to his obligations. Presumably he would also notice the special danger of borrowing on a floating rate basis to speculate on stock markets when interest rates are low and stock prices are high. He might also notice the unfairness of covering up unfairly low past contributions by employees, the worrisome precedent set by borrowing from a non-discretionary special fund, and the mythology of designating another special fund as the source of the repayment of the loan when the obligations already payable by that fund dwarf that fund’s assets. If he drilled down further, he would also learn that the state’s future pension payments are coming due faster than they used to, which means CalPERS is increasingly unable to invest for the long term and increasingly at risk to the consequences of market volatility.

Perhaps Moorlach, Chiang and Brown are confused by accounting, just as a number of municipal governments have been confused by pension obligation bonds. Like Brown’s proposal, POB’s allow governments to boost contributions, thereby allowing them to report smaller unfunded liabilities (ie, the difference between assets and liabilities), but that’s an accounting fiction because all the prior pension liabilities remain in place and the new debt is elsewhere on the balance sheet (see eg, Stockton’s POB). Ie, the municipality (or the state in Brown’s case) gets to report more pension assets and thereby a smaller unfunded liability (in my example above, the unfunded liability would drop from 35 to 31) and in a separate spot report the borrowing that provided the money to boost the assets. But net net, there’s no reduction in amounts owed and now there’s also interest due on the new borrowing. What Brown proposes is no different than Lehman Brothers proposed to Stockton except that, unlike Stockton, he doesn’t need an investment banker to issue bonds to the public. Instead he and the legislature would authorize the state to issue a note to a special fund.

California has already gotten into deep hot water as a result of uninformed legislation and projections involving pension economics (see eg, SB 400) and pours more hot water every day by failing to fund new promises at adequate levels. Brown’s scheme — nothing more than a leveraged boost to assets in the hope and prayer there will be a positive spread between the cost of the loan and earnings on the assets — will just add more hot water. It’s a very un-Jerry-Brown-like proposal that he should withdraw.

NB: Chiang and Moorlach also invalidly analogize Brown’s proposal to “[making] an extra mortgage payment.” It is no such thing. Mortgages are obligations secured by assets.An extra mortgage payment that reduces the principal balance of a loan secured by an asset would boost the payer’s equity in that asset. In contrast, there is no equity to be gained from an extra pension payment. Also, in both cases the extra payment would reduce total interest expense if obligations were reduced but as explained above, Brown’s proposal would not pay down pension obligations.


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MOORLACH UPDATE — Alumnus DA? — June 11, 2017

I have another alumni in the news. The OC Register‘s Commentary section provides an interesting alternative to the two most visible Orange County District Attorney candidates. They are the incumbent and the Third District Supervisor.

The piece below opens with the dilemma. The two major dancers are flawed. So, who would be crazy enough to step into the fray? The June Primary would find that candidate trying to get the two knowns below 50 percent. Then, in the November General, hope to prevail. It’s not an easy road.

I could give plenty of links to the two titans, but the piece deals with them already. So, let me deal with the "dark horse" candidate that this piece focuses on, Professor Mario Mainero. Mario is one of the smartest people I’ve ever had the privilege to work with. He is also one of the sincerest. Although I don’t believe he’s ever managed a large department, we certainly enjoyed a number of adventures during our brief journey together. Allow me to give you just a few of them, since I’m not concerned about allowing staff to respond to media requests, my UPDATE records are replete with Mario mentions.

With the title of Professor, let me start there. Here is an UPDATE that provides a perspective on his current role at Chapman University’s School of Law, MOORLACH UPDATE — Mainero — December 4, 2009 december 4, 2009 john moorlach, but it also mentions some historical events that need elaboration.

The first is the County’s ethics commission efforts. Mario worked hard on trying to pursue this concern while he was my Chief of Staff. This activity revolved around one Shirley Grindle. See MOORLACH UPDATE — Shirley Grindle — July 19, 2015 july 20, 2015 john moorlach. This link provides a number of additional links for your reading pleasure. Mario continued on this project in his current role and assisted in the successful passage of countywide Measure A on the June, 2016 ballot. Consequently, Mario is familiar with the political process.

The first link also mentions the OC Fair and its potential sale during the Schwarzenegger era. This was a difficult and convoluted process that looked promising going in, but got perplexing as it progressed. It was one of the more disappointing episodes during my time as County Supervisor. See MOORLACH UPDATE — OC Register — September 24, 2011 september 24, 2011 john moorlach. The crazy thing about the whole affair was the District Attorney’s review of the transaction, with a very awkward and, in my opinion, flawed conclusion. Consequently, Mario has firsthand experience with a political DA.

Let me transition here to provide a few links about my alumni. It has been a joy to serve as a County Supervisor and I have had some incredible professionals on my staff. You just received a recent UPDATE on one of them (see MOORLACH UPDATE — Alumni and Recognition — June 7, 2017 june 7, 2017 john moorlach). Here are a few more fun links: MOORLACH UPDATE — Good Bye and God Bless — January 2, 2015 january 2, 2015 john moorlach, MOORLACH UPDATE — JWA Settlement Agreement — October 1, 2014 october 1, 2014 john moorlach, MOORLACH UPDATE — Chiefs of Staff — August 9, 2014 august 9, 2014 john moorlach, and MOORLACH UPDATE — OC Register — December 9, 2011 december 9, 2011 john moorlach. Consequently, Mario has had government experience with the County of Orange.

One of the first tasks that I gave to Mario was researching the constitutionality of granting retroactive pension benefits. The research bore out that granting them was unconstitutional. But, Superior Court and Appellate Court Judges are in the state pension system, as are Supreme Court Justices. You can see my bias as to why are efforts were not successful. See MOORLACH UPDATE — Seal Beach Sun — August 3, 2012 august 3, 2012 john moorlach, MOORLACH UPDATE — I-405 Toll-Lane Proposal — July 21, 2012 july 21, 2012 john moorlach,MOORLACH UPDATE — Petition Denied — April 14, 2011 april 14, 2011 john moorlach, and MOORLACH UPDATE — California Lawyer — September 8, 2010 september 8, 2010 john moorlach. Consequently, Mario proved his legal research capabilities.

Mario also assisted in contract negotiations, including the remaining contracts that were still open after I assumed the office of Supervisor. While completing my term as Treasurer, I assisted in negotiating one of the nation’s more successful retiree medical plan restructurings (see MOORLACH UPDATE — Alternative 2 — October 22, 2012 october 22, 2012 john moorlach). Consequently, Mario knows how to deal with public employee unions at the negotiating table.

With the tragic murder of John Derek Chamberlain in the Theo Lacy Jail, we were able to establish an excellent Office of Independent Review. The idea was first established by Los Angeles Sheriff Lee Baca, but he did not adhere to his. Orange County did and avoided a number of law suits that LA County did not (see MOORLACH UPDATE — Money for Nothing — September 2, 2015 september 2, 2015 john moorlach and MOORLACH UPDATE — Property Tax Due Date — April 10, 2013 april 10, 2013 john moorlach). Consequently, Mario understands and appreciates the role of an independent oversight structure.

Another one of the issues we addressed in our first few months was the dueling DNA labs. The Sheriff usually has one, but the DA unilaterally decided to establish his own, for many reasons (see MOORLACH UPDATE — United Way — December 16, 2013 december 16, 2013 john moorlach and MOORLACH UPDATE — Highway Robbery — September 23, 2013 september 23, 2013 john moorlach). Mario even visited the main contractor for the DA in Birmingham, Great Britain. Consequently, he fully appreciates this technology.

In 2008, I pursued a charter amendment that would require voters to approve any negotiated improvements to public employee union pension benefits if they created an immediate liability. It was Measure J, and it was approved resoundingly by the voters (see MOORLACH UPDATE — Happy Birthday! — September 30, 2013 september 30, 2013 john moorlach). Consequently, Mario fully appreciates campaigns and the debilitating impacts of unfunded liabilities.

With the joys of having an airport in my District, we focused first on an effort to work with neighboring facilities. The organization went by the acronym of SCRAA, Southern California Regional Airport Authority. Because we saw it as a deficient remedy, I refused to be seated on its Board. It would eventually disband (see MOORLACH UPDATE — Loose Interview — February 2, 2013 february 3, 2013 john moorlach and MOORLACH UPDATE — Pension Overhaul — September 6, 2012 september 6, 2012 john moorlach). Consequently, Mario appreciates intergovernmental efforts.

Although Mario was not on my staff when the John Wayne Airport Settlement Agreement negotiations were in full bloom and concluded, we always kept our eyes on this ball (see MOORLACH UPDATE — Filing Closes — March 13, 2010 march 13, 2010 john moorlach). Consequently, Mario knows how to keep his eye on the horizon.

One of the most disappointing occurrences was the melt down of "America’s Sheriff" right before our eyes. It was not easy to ask Sheriff Carona to resign, but I did. And, I was the only one to do so for a lengthy period of time before he finally did (see MOORLACH UPDATE — Super Vote — November 6, 2012 november 6, 2012 john moorlach and MOORLACH UPDATE — CSUF/Mihaylo — November 5, 2012 november 5, 2012 john moorlach). Consequently, Mario knows how to deal with the tough and unpleasant decisions.

Although Sacramento is a union town, I was not interested in making Orange County one. So we constructed an ordinance that would not allow the requiring of Project Labor Agreements for construction contracts, unless required by law, which was the case before I took the position (see MOORLACH UPDATE — — January 28, 2010 january 28, 2010 john moorlach and MOORLACH UPDATE — PLA — October 29, 2009 october 29, 2009 john moorlach). Consequently, Mario is not afraid to go against the grain or take on powerful, private sector unions.

Another initiative that was being tossed around was the potential of handing over the Orange County Sheriff’s Harbor Patrol functions to the city of Newport Beach. This certainly generated a strong reaction from the Sheriff’s union (see MOORLACH UPDATE — OC Register — May 3, 2012 may 3, 2012 john moorlach). Consequently, Mario can help in gathering the appropriate professionals to reach a satisfactory conclusion.

A critical Sheriff’s Department concern was the amount of overtime. We utilized a similar strategy, utilizing the Performance Audit Department, to obtain a satisfactory handle on this matter (see MOORLACH UPDATE — H.R. 205 — August 28, 2013 august 28, 2013 john moorlach). Consequently, deploying the proper professionals to a situation provides the information to make better decisions.

If dealing with all of these balls in the air was not enough, my successor County Treasurer had an investment that went sour, and found me addressing it as a County Supervisor. The "Whistlejacket" investment was one of many fun antics from my former Department (see MOORLACH UPDATE — Voice of OC — March 19, 2013 march 19, 2013 john moorlach). Consequently, Mario can quickly handle surprises which entail technical difficulties.

As the political world is not a pretty one, and scuffles can arise and tempers rise, Mario did not have an issue in discerning the former Attorney General’s motivations in how he addressed my retroactive pension benefit law suit (see MOORLACH UPDATE — Adopt a Channel — September 13, 2013 september 13, 2013 john moorlach and MOORLACH UPDATE — New Geography — September 4, 2013 september 4, 2013 john moorlach). But, dealing with this type of activity when you are the candidate is a different matter. I wish Mario well, should he move forward, as scuffles are not always his favorite past times.

For fun, let me toss in the time we both attended a swearing in ceremony for the incumbent District Attorney, affectionately referred to here as T-Rack (see MOORLACH UPDATE — Belmont Shore-Naples Patch — January 12, 2012 january 12, 2012 john moorlach). Which gets me to my conclusion.

Steven Greenhut was not too friendly to me and Mario in a piece some eight years ago that dealt with Tony Rackauckus and his inability to publicly debate his support of the death penalty (see Maybe this is still under Mario’s craw. But, Mario knows Tony and Mario knows Todd and Mario is right in that the County could do better. Let’s hope that his "testing the waters" adventure is a positive one.

A welcome dark-horse candidate in DA race

By Steven Greenhut

Orange County’s criminal justice system — and especially the District Attorney’s Office — has been racked by scandal and the subject of unflattering national media attention and ongoing court battles. There are few things government does that are more important than dealing with crime and punishment, so it’s upsetting to witness the never-ending sea of controversy.

For such a wealthy and sophisticated county, residents here have had a long and depressing tolerance for dysfunction in such an important area of public life. Part of the reason is the suburban nature of the county. There’s a law-and-order ethic that, unfortunately, doesn’t always mind if cops and prosecutors play fast and loose with the rules.

But the bigger problem may be politics. Republican District Attorney Tony Rackauckas — a man I heartily defended when he was challenged for re-election in 2002 — careens from one high-profile problem to another. The latest: Two DA investigators made some whistle-blower allegations against Rackauckas. “It is the second time this month that Rackauckas has been accused by one of his investigators of using his office to help political supporters and retaliate against those who voice opposition,” according to a Register report in late May.

But many local Republicans are loath to criticize Rackauckas too harshly. They know he may deserve brickbats, but believe the alternative is too awful to contemplate. That alternative would be Supervisor Todd Spitzer, the former assemblyman who has been hammering Rackauckas for years. Spitzer, also a Republican but not a party loyalist, wants to be the next DA. Unfortunately, he is so eager for the post that he gives lots of people the creeps.

So the adults who should be calling for major justice system reform here largely are mum, lest their criticism of Rackauckas help Spitzer win. Spitzer — a guy whose citizen’s arrest of an evangelist who bothered him at a restaurant two years ago has raised “temperament” questions — can come across like a door-to-door salesman exploiting any angle to get you to sign on the dotted line. That devalues the legitimate and thoughtful criticisms he makes.

Maybe it’s time to break out of this world of binary choices. Enter a potential dark-horse candidate, a well-respected Chapman University law professor and former chief of staff to then-Supervisor (and now state senator) John Moorlach. Mario Mainero is seriously considering a run for district attorney. If he can’t raise the funds, he wants another qualified legal mind to enter the fray.

If he runs in 2018, Mainero is pledging an issues-oriented, nonpartisan campaign focused on managing the DA’s department in a fair and just manner, avoiding any hint of political favoritism, professionalizing the department, and avoiding a “win at all costs” mentality that he claims is at the heart of the problems surrounding the District Attorney’s Office.

“The problem is, indeed, exacerbated because both Tony and Todd are playing politics over it,” he told me. “Todd has looked for every opportunity to skewer the DA’s office, and Tony has responded with criticism of Todd’s overeagerness in just about everything. I loathe what Tony has done to the culture of the DA’s office … and I fear that Todd … would politicize the office as well, just in a very different way.” Some fear Spitzer might wage political witch hunts.

From a policy perspective, Mainero would refuse to use snitches that are in violation of the right to counsel; stop having press conferences in major cases that come across as political grandstanding; halt the pursuit of death penalty cases, which he says sap resources that could be better used; and end the DA-run crime lab, which he sees as a conflict of interest because the DA’s Office has a vested interest in the evidence that helps determine the outcome of cases.

Mainero would also evaluate whether the Sheriff’s Department is using unconstitutional tactics to gather evidence in the jails, and create a professionalized unit within the DA’s Office to prosecute political crime. On the latter point, he pledges that he would not be as zealous as the DA’s Office in the past, but would take such allegations more seriously than Rackauckas, who has made a point of avoiding political corruption cases.

“The next DA must have clearer ethics, more transparency and understand how law enforcement and prosecutorial misconduct undermine the first duty of justice, which is to truth,” said Diane Goldstein, a former police lieutenant and Orange County resident who works on criminal justice reform issues. Such views should resonate in the county.

I’m not touting Mainero’s — or anyone’s — candidacy, but it would be nice for Orange County residents to consider something out of the box and finally break out of this Spitzer vs. Rackauckas rut.

Steven Greenhut is a Sacramento-based journalist. He was a Register editorial writer from 1998-2009. Write to him at stevengreenhut.


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MOORLACH UPDATE — Recycling Bottled Up — June 10, 2017

Last week the Senate failed to approve Senator Wieckowski’s bottle bill, SB 168. It failed by a vote of 14-to-17, with 9 abstentions. It’s a rare day when a bill authored by a Democrat doesn’t get the votes needed to pass. But, it provides a chance for me to rant and show how messed up Sacramento is.

Senator Wieckowski provided three important aspects to his bill. The first is that he worked diligently to craft it, reflecting a serious amount of time invested. The second is that it would transfer this money-losing reclaiming project onto the private sector. And the third is that he warned that it was his bill or a budget trailer bill that was supported by the Governor.

The Yuba Net provides the conclusion of the story, at least for now, in the commentary piece below. For the set up of this lament, go to But, remember, although a good primer on the topic, this link is provided to you by the same organization that wrote the Yuba Net piece.

Let me bring you back to the beginning. SB 168, The Beverage Container Recycling Act of 2017, made it through the Senate Environmental Quality Committee with the necessary votes, but found the two Republicans abstaining. It was placed on suspense by the Senate Appropriations Committee on May 15 and then voted to the Floor on May 25, with the two Republican committee members voting in opposition.

This vote moved SB 168 to the Senate Floor and the lobbyists came out en masse to oppose the bill. It would place an onerous financial burden on the private sector, including every bottler. This would mean that even small wineries with direct sales would be impacted.

I appreciated Sen. Wieckowski’s hard work to craft a solution. The Moorlach family recycles and leaves our bottles for our landscaper’s crew, as a tip.

I also appreciated that Sen. Wieckowski was attempting to move the program to the private sector, and I praised him for it on the Senate Floor. At a time when colleagues on his side of the aisle wanted to assume the entire medical industry, I found it refreshing that one Democrat was saying that CalRecycle was a bust and that the function should be outsourced.

The irony was not lost on me! California’s state government can’t seem to run anything very well. Be it recycling or maintaining roads. Nor can it do it more efficiently than the private sector. So, taking on health care should make everyone extremely nervous.

But, requiring even small, independent wineries, those that only sell to those who visit or order directly, as they are not household brands distributed through major wholesalers and retailers, to participate seemed a bit much. Consequently, I abstained.

Thursday night, when the Governor’s version came up for a vote during the Budget Conference Committee, it also failed. It was another rare moment when the Republicans and Democrats agreed.

However, this tale also shows how government cannot react quickly enough to market force changes. California has a bureaucracy that is so large and unmanageable, that this Governor cannot lead and resolve even a simple task as addressing a struggling recycling program.

This Governor needs to fix this state and he is not doing it. Spending time traveling around the globe on behalf of the climate change topic is a distraction that is keeping him from performing the real duties to which he was elected. Let’s hope his successor is not another recycled Jerry Brown. This state needs a fiscal leader at the helm. And soon.

State Recycling Plan In Limbo After Senate Rejects Governor, Assembly Fix

More than 560 Recycling Centers Have Closed; Rates Below 80% for first time since 2008.

By Californians Against Waste

Despite closed recycling centers and falling recycling rates, Senate members of the Budget Conference Committee last night rejected a proposal supported by the State Assembly and Governor Jerry Brown to fix the problem.

The action came late last night as the Conference Committee on the Budget finalized a 2017-18 budget agreement between both houses of the state legislature and the Governor’s office.

The recycling proposal advanced by the Assembly and supported by the Governor’s office would have authorized the California Department of Resources Recovery and Recycling (CalRecycle), to utilize a portion of the $250 million surplus in the State Beverage Container Recycling Fund, to fund the state’s recycling infrastructure at 2015 levels.

Since program funding levels were reduced in 2016, more than 560 recycling centers have closed and beverage container recycling rates have fallen below 80% for the first time since 2008. Data from CalRecycle indicates that 1.6 million fewer containers per day were recycled during the last 6 months of 2016, resulting in more than 22,000 tons of increased litter and waste.

“Despite a $250 million fund surplus, California’s recycling operations are being short changed, resulting in closed centers and declining recycling rates,” said Mark Murray, executive director of the environmental group Californians Against Waste. “The State Assembly has consistently supported full funding, and this week the Governor’s office got on board.”

No word on why the State Senate rejected the proposal. The Conference Committee on the Budget is chaired by State Senator Holly Mitchell (D-Los Angeles). Other members include: Senator Ricardo Lara (D-Bell Gardens); Senator John Moorlach (R-Costa Mesa); Senator Jim Nielsen (R- Gerber); and Senator Richard Roth (D – Riverside). The proposal was authored by Assembly Budget Committee Chair Phil Ting (D – San Francisco).

The recycling program budget fix was supported by a broad coalition of local governments, recycler, curbside programs, retailers and environmental groups. There was no known opposition.

The loss of recycling centers has hit rural areas especially hard. For consumers who try to supplement family income by redeeming containers, the loss of buyback recycling locations has reduced total redemption pay-back by more than $3 million per month.

In an April report to the Legislature, California’s Legislative Analyst’s office attributed the closures to a decline in scrap prices and “program payments that do not sufficiently cover recycler costs”.

As recently as 2013, the California Bottle Bill had an 85 percent recycling rate, diverting more than one million tons of plastic, glass and metal, and contributing thousands of jobs and more than $2 billion to the state’s economy, while delivering the equivalent of 1.45 million tons of reduced carbon dioxide emissions.


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MOORLACH UPDATE — Pension Note, SR 39 and RPS — June 9, 2017

We concluded the Budget Conference Committee a little after 11 p.m. last night. There were plenty of opposition votes by the four Republicans present (me, Senator Jim Nielsen, Assemblyman Jay Obernolte and Assemblyman Phillip Chen) on many items needing reconciliation between the Senate and the Assembly budget proposals. Although the four Republicans represented 40 percent of the vote, the Democrats voted their way, with many issues passing on a 3-to-2 vote. So, it will be the majority party’s budget. However, I felt that I did add value to the process in several crucial areas.

One item that was approved was the Governor’s proposed additional $6 billion payment to CalPERS. Last night I inquired if the CalPERS Board had been contacted and if they were willing to provide an incentive for the early payment. I was informed that this information was forthcoming. We are expected to convene on Tuesday of next week for a Senate Budget and Fiscal Review Committee meeting, on which I serve, but no specific time was provided. After the Budget is approved there, it will go to the Senate and Assembly Floors on Thursday morning, thus meeting constitutional deadline of June 15th.

California’s State Treasurer, John Chaing. invited me to do a joint editorial on the veracity and potential benefit of this simple, $6 billion cash flow transaction. The San Jose Mercury News provides our collaborative effort in the first piece below. The Bond Buyer, the national daily for municipal bond investors and sellers, provides its perspectives in the second piece below. (Also see MOORLACH UPDATE — Single-Payer — June 2, 2017 june 2, 2017 john moorlach and MOORLACH UPDATE — CalPERS and “C” Words — May 26, 2017 may 26, 2017 john moorlach).

Why am I comfortable with this proposal? Because I was involved in a similar strategy while serving as Orange County Treasurer-Tax Collector and Orange County Supervisor. It was a short-term pension obligation note, not a pension obligation bond (POB). If the Governor would utilize the strategy that I helped structure, California could benefit from significant savings (see MOORLACH UPDATE — Memories — May 27, 2013 may 27, 2013 john moorlach).

For a refresher course on the magnitude of this fiscal issue, see
MOORLACH UPDATE — Pension Hole — July 31, 2015 july 31, 2015 john moorlach.

Senate Resolutions usually go right to the Floor. However, if the Senate Rules Committee is not excited about the resolution, it refers it to a committee, hoping that it will be killed there. That’s what happened with SR 39 by Sen. Mike Morrell. For 39 years, Proposition 13 has protected homeowners from massive rising property taxes, yet the State Senate can’t pass a simple resolution honoring all that it has accomplished. The details are provided in the Highland Community News, the third piece below.

And the closer is a tutorial on the mandates that the monopoly party are placing on the utilities and the electricity users in California. Solar energy is great, during daylight hours. You get the drift. The San Diego Union Tribune provides a thorough treatise on Senate Bill 100 and the subject of RPS in the fourth and final piece below.

Opinion: Is Jerry Brown’s

pension-paydown plan a boon

or a boondoggle?


Albert Einstein purportedly called the compounding interest earned on investments the “eighth wonder of the world.”

Whether this is fact or legend, you do not need to be a financial genius to figure out it makes sense to pay down the state’s high cost pension liabilities with idle funds that earn very little interest.

The same reasoning that says it is smart to pay off a high-interest personal credit card with a low-interest one applies to government.

That is why the governor’s budget proposal presents a prudent opportunity to reduce the state’s unfunded pension liability by more than $11 billion over the next 20 years.

Shrinking the unfunded liability, now at $59 billion, frees up money down the road that can be used to invest in public safety, environmental protection, health care and other vital, public programs.

All this can be accomplished without reaching deeper into the pockets of taxpayers or the public workforce that serves them.

This plan works by having the state make an extra $6 billion payment to the California Public Employees’ Retirement System using monies not immediately needed for state operations.

These idle funds currently earn less than 1 percent. Given that pension debt costs the state 7 percent, this proposal is just as fiscally prudent as a family deciding to use some of its discretionary cash to pay off an expensive credit card or make an extra mortgage payment.

These idle funds will be paid back in 12 years – and hopefully sooner – at an interest rate based on two-year U.S. Treasuries.

Money to repay the $6 billion comes from a portion of the rainy-day fund created by voters in 2014 when they passed Proposition 2. One of the two intended purposes of the ballot measure was to pay down certain debts, such as this proposed $6 billion internal loan of surplus funds.

It is important to emphasize that the proposal is a world away from being, as some claim, a “pension obligation bond,” which is money borrowed from Wall Street to use for investment purposes. With this proposal, the state is borrowing from itself.

The upshot is a classic win-win situation. CalPERS’ staggering unfunded pension liabilities are reduced, saving the state billions of dollars. And, the state’s surplus money fund earns higher rates of return than it receives on its typical short-term investments.

So, if there is a steep downturn in the economy, will this plan pencil out?

The fact is that the state must deal with an existing $59 billion unfunded pension liability regardless of whether this pension pay-down plan happens or not. The taxpayers of California are already on the hook to pay this bill.

If the interest rate gap between CalPERS’ investment returns and the $6 billion cash loan narrows, the savings may be less, but the scale of savings should still be significant. Based on 30 years of historic data, it is highly unlikely that the state would lose money.

What is more, nothing in this pension stabilization plan limits the state’s ability to exit the strategy early if required by changing circumstances.

Bottom line, this is an opportunity to make real progress toward reducing pension obligations. This prudent plan gives Californians a path toward easing the burden on future generations.

John Chiang is California’s state treasurer. John Moorlach is Republican state senator representing Costa Mesa. They wrote this for The Mercury News.

Questions raised about Jerry Brown’s California pension payment plan

By Kyle Glazier

California Gov. Jerry Brown’s plan to use a short-term state investment fund to make a $6 billion supplemental payment to its largest pension fund met with skepticism from some observers, who view the strategy as functionally the same as a pension obligation debt issuance.

The proposal, released in Brown’s May state budget proposal, enjoys support on both sides of the aisle. But pension liability hawks are not convinced of the plan’s wisdom, and analysts also cite risk inherent in the approach.

The payment to the California Public Employees’ Retirement System would be financed with a loan from the state’s Surplus Money Investment Fund. The state would repay the loan over 12 years, beginning with a $427 million payment funded from its $1.78 billion Proposition 2 liability.

Proposition 2 is a state constitutional amendment passed in 2014 requiring that from 2015-2016 fiscal year until the 2029-2030 fiscal year, 50% of revenues that would have otherwise been deposited into a rainy day fund must be used to pay down debt obligations.

Brown and other top state officials believe the move makes sense because California’s annually required contribution to CalPERS is on track to rise sharply in the coming years.

An analysis by S&P Global Ratings’ Gabriel Petek from data provided by the state Department of Finance noted that California’s general fund contributions to CalPERS are projected to increase to $5.3 billion in fiscal 2024 from $3.4 billion in fiscal 2018, and that under the plan the increase would be only $4.9 billion.

“Assuming CalPERS achieved its investment return target (7%), the DOF estimates that the transaction would yield savings of $11 billion, net of the interest cost on the loan, over 20 years,” Petek wrote.

Pension liabilities are becoming increasingly front and center in the minds of bond investors and analysts, who have noted that pensioners have consistently won out over bondholders in Chapter 9 bankruptcy cases such as those in Detroit and Stockton, Calif. and who say rising pension costs are likely to pressure state and local finances more and more in coming years.

Brown, a Democrat, appears to have found a reasonably bipartisan approach with the prepayment plan. Democratic leaders such as Senate President Pro Tempore Kevin de Leon and Senate Budget Committee chair Holly Mitchell released statements positive about the revision noting the savings it could net.

State Sen. John Moorlach of Orange County, a Republican and former county treasurer who has consistently argued for California to take action on its pension liabilities, also supports the plan and has urged colleagues to support it as well. Moorlach said the plan appears to be bipartisan enough to pass, though it remains a bit of a question whether it will ultimately be included in the budget that the legislature must constitutionally pass by June 15th.

“I think the outlook is reasonably bright,” Moorlach said. “I’m excited that it’s at least being discussed.”

Moorlach said that when he was Orange County treasurer, he oversaw the issuance of a successful pension obligation note issuance that saved millions of dollars for the county and sees a similar opportunity here.

“I see minimal risk in doing it other than some massive market adjustment that occurs,” Moorlach said. “It’s not as if the state is taking a real cash flow risk.”

Moorlach said one thing that is missing for him is that he wishes CalPERS would come to the table with some kind of incentive to make it more worth the state’s while, but that he nonetheless likes the concept.

CalPERS itself is also on board, urging employers to also step up their contributions to the plan.

“We are encouraged by the proposal and support employers making additional contributions toward their unfunded liabilities,” said CalPERS spokesman John Osborn.

But outside the legislature and the pension fund leadership, some observers warily view Brown’s plan as functionally identical to pension obligation bonds, which played a major role in the Stockton bankruptcy and which the Government Finance Officers Association now advises issuers to avoid.

The use of POBs, or what skeptics say is California’s structurally similar strategy, rests on the assumption that the money invested with pension assets in higher-yielding asset classes will be able to achieve a rate of return that is greater than the interest rate owed on the borrowed money.

“In the event of poor investment performance," S&P’s Petek wrote, “the state could be left facing higher than projected pension contributions along with the liability related to the internal loan.”

Chuck Reed, the former San Jose mayor and an outspoken advocate for action to address unfunded pension liabilities, said that he was far from confident in the borrowing plan.

“It’s hardly ever a good idea,” Reed said of this kind of financial structure. “It’s better for the fund of course, because money is money. But they’re betting on arbitrage.

“Usually it’s a red flag for systems that are in trouble,” Reed added.

The payment to CalPERS is modest in the face of the amount of money it needs in the coming years, Reed said, adding that he believes that there is a long California tradition of “gimmicks” in which money is shifted from one place to another.

“It would be better if they used real money. What they need to do is put about $6 billion per year in for the next 20 or 30 years,” Reed said, conceding that to do that would be politically impossible.

California’s legislative leaders have said they plan to pass a budget bill by the June 15 deadline for approval by Brown by June 30. That new budget would have a July 1 effective date.

Sacramento Democrats Kill Morrell Measure to Reaffirm Commitment to Protecting Taxpayers

In Another Hit to Pocketbooks, Vote Signals Lack of Support for Lower Property Taxes

By Senator Mike Morrell

Today, Democrats on the Senate Governance and Finance Committee blocked Senate Resolution 39 by Senator Mike Morrell (R-Rancho Cucamonga), a measure that would have recognized the historic passage of Proposition 13 and its role in keeping property taxes low for homeowners. The committee’s rejection of this measure comes on the heels of the largest gas and car tax increase in California history and the Senate’s recent passage of a single-payer state-run health care bill estimated to cost $400 billion and that could increase personal tax bills by more than $9,200.

"It has become increasingly clear that Sacramento Democrats do not believe there should be any limits on the amount of money that can be taken from hardworking citizens to pay for growing government," said Morrell. "Proposition 13 has empowered seniors on fixed incomes to stay in their homes and made home ownership possible for millions of first-time buyers. Senate Resolution 39 would have recognized this fact and shown the people of California that this body is in strong support of the initiative almost four decades after voters passed it."

Proposition 13 was overwhelmingly approved by California voters in 1978 to lower property taxes. During a time of economic uncertainty, the law ushered in welcome tax stability and certainty. Today, Proposition 13 continues to save individual new homeowners and small businesses thousands of dollars annually in property tax payments. The initiative still remains popular with voters 39 years later.

"As we celebrate the 39th anniversary of Proposition 13, we can be thankful that property owners have saved hundreds of billions of dollars in property taxes," said David Wolfe of the Howard Jarvis Taxpayers Association in support of Senate Resolution 39. "The stability of Proposition 13’s one percent cap has been imperative to not only keep seniors in their homes and small businesses afloat, but also to allow millennials to overcome high home prices to be able to live out the American Dream."

"Only in the California legislature would standing up for a law that saves homeowners money and prevents them from being kicked off their property be considered controversial," continued Morrell. "Today’s vote should be a red flag to taxpayers, as it further reinforces the fact that Democrats want to see Californians pay even more of their well-earned money to the government."

Senate Resolution 39, supported by the Howard Jarvis Taxpayers Association, failed passage in the Senate Governance and Finance Committee by a final vote of 2-5. Committee members voting in favor of low property taxes were Senators John Moorlach (R-Costa Mesa) and Janet Nguyen (R-Garden Grove). Committee members voting against the resolution were Senators Jim Beall (D-San Jose), Ed Hernandez (D-West Covina), Bob Hertzberg (D-Los Angeles), Ricardo Lara (D-Bell Gardens), and Mike McGuire (D-Healdsburg).

# # #

Senator Morrell represents the 23rd State Senate District, which covers portions of Riverside, San Bernardino and Los Angeles Counties.

Can California really hit a 100% renewable energy target?

Rob Nikolewski

California takes pride in its clean energy credentials, but the state may be poised to take an even more dramatic next step: deriving 100 percent of its electrical power from renewable energy sources by the end of 2045.

“I don’t think it’s a big stretch, politically,” said Senate President pro tem Kevin de León (D-Los Angeles), who introduced a bill in Sacramento that would lay down the zero-carbon sources threshold.

The legislation, Senate Bill 100, passed the California state Senate on May 31 on a party-line 25-13 vote and now moves to the Assembly. With the state Legislature in Sacramento dominated by Democrats and two and a half months still remaining in this year’s session, the chances of Senate Bill 100 moving onto Gov. Jerry Brown’s desk look promising.

Through the state’s Renewables Portfolio Standard (RPS), California already has a standard calling for 50 percent clean energy by 2030. According to recent estimates by the California Energy Commission, the state now obtains about 27 percent of its electricity from renewables.

Can California, home to the world’s sixth-largest economy, essentially de-carbonize its entire electric grid in the space of 28 years? Is it technically feasible? And can it be done without sending ratepayers’ bills through the roof?

That seems to depend on who’s answering the question.

“I’m confident (Senate Bill 100) will get passed,” de León said while talking to reporters at a wind energy conference in Anaheim recently.

In 2015, De León introduced a bill that became law, establishing the current 50 percent reduction target.

“The one thing I realize a year or two later is, I made a mistake. I should have shot higher with the RPS,” de León said. “It is very clear to me that the investor-owned utilities are working really hard and they’re meeting the goals and they’re probably going to hit 50 percent RPS in the early 2020s without breaking a sweat.”

SB 100 doesn’t just set a 100-percent marker; it would also accelerate and expand existing California clean-energy targets.

Instead of reaching 50 percent by 2030, SB 100 speeds up the deadline by four years, to 2026. It also directs the state to reach 60 percent renewables by 2030. And SB 100 would also require state agencies such as the Air Resources Board to use the 100 percent target in their long-term planning and decision-making.

SB 100 sets a target for 100 percent renewable energy but does not mandate achievement of that goal. When asked about that, de León said, “Yeah, but we always hit our goals. It doesn’t make a difference.”

Others are much more skeptical.

“Do you wear a seat belt when you drive a car?” asked Gary Ackerman, executive director of the Western Power Trading Forum, an organization based in Sacramento whose 90 members in the West buy and sell power. “There’s no problem as long as there is no accident …. And that’s the risk California is driving toward at a very fast clip. I think it’s reckless.”

While the share of renewable energy sources is growing, the state’s largest source of electricity, by far, is natural gas, which makes up 44 percent of California’s power mix, according to 2015 figures from the California Energy Commission.

Natural gas burns twice as clean as coal but is nonetheless a fossil fuel.

By doubling the state’s clean-energy requirements from 50 percent to 100 percent, Ackerman worries, “You’ll chase out all the gas-fired generators that are required to keep the grid secure and available and reliable … and when you do that, you’re taking more and more risk.”

But supporters of the 100 percent renewables effort may have received support from an unlikely source three weeks ago.

At an energy conference sponsored by the UC San Diego’s Institute of the Americas, an executive from Sempra Energy expressed confidence that the transition from traditional energy sources to renewables may not be so difficult after all.

“If you were to ask me three years ago, as a power engineer, can we actually achieve a high percentage of renewable, my answer would probably be no, we’re going to need some base-load generation,” said Patrick Lee. “But today my answer is, the technology has been resolved. How fast do you want to get to 100 percent? That can be done today.”

Considering that Sempra is a major player in the natural gas industry, Lee’s comments generated buzz among conference attendees.

But two days later, Lee took to Twitter to say that his remarks were “incomplete” and he did not mean to say reaching the 100 percent mark can be achieved immediately. “Today a reliable grid in (California) requires natural gas-fired generation,” he tweeted.

Lee is president of a new Sempra subsidiary called PXiSE Energy Solutions that is developing software technology for large-scale renewable projects.

In an email to the Union-Tribune, Doug Kline, director of corporate communications at Sempra, said Lee’s comments “were aspirational in nature” and going to 100 percent renewable energy right now is “not practical nor realistic.”

Natural gas “is the backbone of energy production when the sun is not shining and the wind is not blowing,” Kline said. “This is not an ‘either/or’ equation: We need a mix of energy resources to maintain and ensure a reliable energy grid.”

One of the members of the board of governors at the California Independent System Operator (CAISO), which oversees the operation of about 80 percent of the state’s electric power system and electricity market, said SB 100’s goals can be achieved.

“It can be done and it is certainly a way to go forward,” said Angelina Galiteva, who is also the founder of Renewables 100 Policy Institute, a think tank in Santa Monica that promotes renewable energy.

On March 11, CAISO reported a first — utility-scale solar generation in its territory accounted for almost 40 percent of net grid power produced during the hours of 11 a.m. to 2 p.m.

“We’re learning a lot and we’re perfectly comfortable operating a high-penetration renewables grid,” Galiteva said.

At the same time, Galiteva acknowledged the challenges that come with integrating a large amount of renewable sources into the grid.

System operators have to balance supply and demand instantaneously, generating every kilowatt that is demanded by customers who expect their lighting, heating and air conditioning to come on the moment they flip a switch.

Solar and wind have problems with what’s called “intermittency” — that is, generating solar power when the sun isn’t shining and wind energy when the wind isn’t blowing.

The power system relies on energy sources like natural gas to fill in the gaps, ramping up and down over the course of the day and night to meet sharp changes in electricity net demand.

“As more solar is added, the ramping gets steeper and more challenging to manage but we’re going to be able to figure out ways to manage those ramps,” said Galiteva.

Energy storage systems are seen as likely solutions. Earlier this year, San Diego Gas & Electric unveiled the world’s largest lithium-ion battery energy storage center — a 30-megawatt plant in Escondido.

Energy storage is relatively expensive but its supporters expect costs to come down as the technology improves, especially by the time 2045 comes around.

Robert Michaels, an economics professor at Cal State Fullerton, is not as confident and predicts SB 100 will lead to higher bills for ratepayers.

“It’s going to be expensive,” Michaels said. “We already know there are a lot of problems with reliability, just with the percentage of intermittent renewables that you have here (in California). And until, and probably not even after, we get a lot more in the way of usable battery storage or some way of storing this stuff, it’s simply not going to be feasible.”

De León said a 100 percent renewable requirement will lead to lower bills, remove more greenhouse gas emissions “so our children can breathe clean air” and create more jobs in the green economy.

According to the U.S. Energy Information Administration, Californians pay an average retail price of 15.42 cents per kilowatt hour. That’s fourth-highest in the continental U.S.

But de León was quick to point out that the average monthly bill in California is almost $20 a month lower than the national average, largely due to the state’s energy efficiency measures.

“The goal and the vision is the right thing for California, especially with the current (Trump) administration,” in the White House, de León said.

One of the Republicans who voted against SB 100, state Sen. John Moorlach, R-Costa Mesa, compared the bill to the public pension crisis.

Politicians can promise “an amazing pension system formula and (they will) be gone, long gone, before the birds come home to roost,” he said. “Anything with a long timeline, you can thump your chest now but you won’t be accountable 30 years from now.”

Ackerman said the over-generation of renewable sources such as solar in California, together with the power already online from gas-fired generators, leads to a reduction in wholesale energy prices.

“You know who sees that benefit?” Ackerman said. “The people in the neighboring states because they’re buying that excess power at a significant discount. People in neighboring states are just backing down their generators and buying (the power) at a discount … It’s like a wealth transfer with Arizona, Nevada, Oregon and other states in the West.”

Boosting California’s renewable requirements is not new.

The state’s first iteration of the RPS in 2002, called for 20 percent of it power to come from clean energy sources by 2017. The target was then accelerated and the percentage later expanded to more than 30 percent before reaching its 50 percent level in 2015

“There was skepticism with the 20 percent (requirement), then at 30 percent,” said Galiteva. “We’ve seen this before.” The continued growth in renewables makes her think getting to 100 percent is within reach.

“We also need to be focusing on other sectors too,” Galiteva said. “De-carbonizing the electricity sector without de-carbonizing the transportation sector and the building sector only gets us part of the way … I mean, we didn’t say, let’s go halfway to the moon. Let’s shoot for the whole way.”

Ackerman has his doubts.

“I’m not saying it’s impossible but it could be very costly, too,” Ackerman said. “I don’t see a price tag attached to this proposal.”

A bill analysis by the Senate Committee on Energy, Utilities and Communications acknowledged that “achievement and progress towards RPS goals have come at a cost,” pointing to increased electricity rates plus the challenges of integrating large amounts of renewables into the energy system.

Another legislative study, done by the Senate Appropriations Committee, said implementing SB 100 would cost the California Public Utilities Commission about $2 million a year and the Air Resources Board $362,000.

It also said the costs for the California Energy Commission to accelerate the existing RPS are “unknown (and) potentially significant.”


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