MOORLACH UPDATE — Independence — July 3, 2010

On Friday I was mentioned in a piece in Reuters and in the OC Register’s second editorial.

Tomorrow we celebrate Independence Day, a day to celebrate freedom and liberty.

It’s tragic that on the financial landscape we are not free.  We are in bondage to systemic annual budget deficits in Sacramento and to a large pension debt here in the OC.  The answer we hear from the majority party is “more taxes.”  That’s oppressive.  Isn’t it time we fight harsh “taxes with representation?”  An opportunity is on the horizon.

Reuters used my inflection point quote.  What was I referring to?  And what was the gist of my conversation with the reporter?  I was referring to the November general election.  This state is at an inflection point.  Do we vote for the candidate that, when he previously served as California’s governor, opened the door to public employee unionization?  Or, do we vote for an outsider who may not have much better results than the incumbent Republican Governor?

Jerry Brown will be our oldest sitting Governor if he is elected this fall.  He was also our youngest in the mid-70s (his autograph is on my CSULB college diploma).  I told the reporter Brown will want to finish well, but the odds are one in three that Brown works with the public employee unions to address our budget and unfunded pension issues. Those odds are a bit too low for my taste.

Meg Whitman has an advantage over our current Governor.  He has proven that bodybuilding is not a team sport.  Whitman will be a better team player with those on the Republican side of the aisle and will pull in the moderate Democrats to build a coalition.

This election will be a major inflection point in our history.  Will the voters track with state demographics and blindly embrace public employee union independent expenditures on behalf of Brown, and keep the status quo?  Or will they determine that a new road needs to be taken in order to address the long-term, systemic budget issues and elect the Harvard Business School educated Whitman?

That explains dialogue behind the Reuters article.

In the meantime, Brown will play to the public employee unions as they are his ATM for funding his gubernatorial campaign.  That’s why, I believe, he submitted an amicus brief supportive of the Superior Court’s decision against our retroactive pension benefit lawsuit.

Fortunately, we’ve received four amicus briefs in favor of our litigation efforts.  The OC Register’s editorial addresses one of them.  Former OC Register editorial writer Harold Johnson is credited with writing the brief that is discussed.  The California State Constitution, specifically Article XVI, Section 18, was the focus of his legal analysis.  Bottom line:  No one can indebt the voters without them having a say in the matter.

Chapman Law School’s John Eastman and friends jumped in with a great history on why the state constitution has this debt avoidance provision.  The Accounting Professionals, accounting scholars from around the country, affirm that a pension obligation is a liability and a debt.  And the California Foundation for Fiscal Responsibility submitted a brief on the severity of the issue and its impacts on the solvency of local municipalities.  The arguments in the amicus briefs were very supportive of our position on the unconstitutionality of granting retroactive pension benefits.

California has no budget, new governor to inherit mess

SAN FRANCISCO

SAN FRANCISCO (Reuters) – California’s next governor — whether it be Democrat Jerry Brown or Republican Meg Whitman — will almost certainly inherit a budget mess this November, given the ominous beginning to the fiscal year on Thursday with no spending plan or hope of one soon.

The next governor — whether it be Democrat Jerry Brown or Republican Meg Whitman — will almost certainly inherit a budget mess this November, given the ominous beginning to the fiscal year with no spending plan or hope of one soon.

State leaders have failed to approve a budget on time in 19 of the past 25 years and Republican Schwarzenegger said that without a fiscal plan, the state, with few exceptions, has to pay the minimum required by federal law, or $7.25 an hour.

Democrat Controller John Chiang, who is appealing the ruling, said he would pay full wages until the appeal process is done.

Checks don’t go out for weeks yet, but the two parties are wildly far apart on how to close a gaping shortfall estimated at more than $19 billion.

State Treasurer Bill Lockyer this week raised the specter of California being forced again to issue IOUs if it runs out of cash.

"It’s absolutely critical that the governor and legislature quickly adopt a budget that’s free of hope-and-a-prayer math and legal clouds. Every day without a credible plan brings us closer to deterioration of the State’s credit rating and the humiliation of IOUs," Lockyer said in a statement.

ELECTION AN ‘INFLECTION POINT’

Recession, the housing slump, battered financial markets and a state jobless rate topping 12 percent have cut hard into state revenue, and few see a credible budget in the works.

Orange County Supervisor John Moorlach expects one-time measures, such as accounting tricks that push payments to later years, in any budget plan and says that makes November’s election critical: "This will be one of those inflection points in California history."

Brown, the state’s unpredictable attorney general, and Whitman — the corporate, former chief executive of eBay Inc — offer a stark choice of personalities. Their differences over the budget are less clear since Brown has not delivered a plan.

Brown is a former governor and an ally of California’s labor movement, which includes powerful public employee unions. But political analysts do not expect he would be a rubber stamp if elected governor.

"Part of it has to do with his personality," said Bill Whalen, a research fellow at the Hoover Institution and a former aide to former Governor Pete Wilson. "He’s enigmatic."

"Another part of it has to do with his political situation," he added, noting that Brown is in his 70s and unlikely to seek office beyond the governor’s office so he may not be "beholden to special interests."

Brown has said he would be an "independent servant of the state," and take budget matters to voters because lawmakers have lost credibility on handling the state’s finances. Spokesman Sterling Clifford said Brown is a realist: "He’s acknowledged the difficulty of what’s coming for the next governor."

Whitman is running for office for the first time, arguing her success in Silicon Valley will help bring a new perspective to state government, and she has outlined $15 billion in budget cuts, wants a spending cap, "real" welfare reform and to "solve California’s pension crisis," her campaign says.

Whitman and Brown will have to work hard to convince voters they can make a difference on the state’s budget because "There’s a ‘show me’ element to what she’s saying, but that also holds true for Jerry Brown," said Whalen.

"This election may come down to core credibility," he said. "Skepticism just pervades the California political system … A good portion of people are just down on the system."

Editorial: Pension suit reinforcements

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Battle lines are being drawn in the legal challenge by the county Board of Supervisors to the constitutionality of retroactive pension enhancements for county public safety workers. Jerry Brown, the state attorney general and Democratic candidate for governor, announced his opposition to the board’s lawsuit; a major California legal watchdog group, meanwhile, pledged its support for the suit.

The intervention in the case of of Sacramento-based Pacific Legal Foundation demonstrates to us the importance of the case and its potential implications for pension reforms among many levels of government and public workers in California and beyond. Jerry Brown’s position only seems to point out that here he is out of touch with voters, who are unhappy at these costly deals.

The board in 2001 voted, wrongly in our view, to include past service when boosting pension benefits for public safety workers. The retroactive benefits were conferred upon public safety officers and retired public safety employees in 2002. Basically, the decision gave workers a raise for work they had already done and, by doing so, placed a new $100 million burden on taxpayers. A later group of supervisors, led by John Moorlach, filed suit, contending that the retroactive increase amounted to an illegal gift of public funds.

On Tuesday, PLF and the Fullerton Association of Concerned Taxpayers announced they had filed a court brief in support of the board’s lawsuit. The brief contends taxpayer rights were violated because voters were not given a chance to approve the pension boost. The foundation’s attorney, Harold Johnson, said in a statement that "the California constitution says local governments can’t encumber taxpayers with long-term public debts or liabilities without asking voters’ approval."

If Mr. Johnson is right, and the benefit is overturned, it would be a major victory for taxpayers and a blow to public unions.

PLF’s involvement signals the national importance of the challenge and the precedent a victory might set. Such an outcome would likely precipitate more challenges, such as to the county’s 2004 retroactive pension spike for other county employees.

Mr. Brown has criticized the supervisors’ suit. Deputy Attorney General Hiran Patel said, "If this court adopts the county’s unprecedented claim that permitting enhanced pension benefits based on prior years of public service is unconstitutional, statutory schemes spanning 97 years will be rendered invalid, and the bargained-for pension benefits of at least 947,000 state and local public employees and their families could be adversely affected." As Register Watchdog reporters also noted, his brief in opposition to the board lawsuit called it "radical."

What is really radical is the $3.7 billion unfunded pension gap the county faces, of which the retroactive pension spike accounts for about $100 million. Mr. Brown, supported for governor by a number of public worker unions, discounted the lavish benefits given to county workers. We’d like to hear what he would do about the runaway pension situation.

FIVE-YEAR LOOK BACKS

2005

July 1

I made it to the Frank Mickadeit column in the OC Register.  It was titled “Veterans depart, irrelevance continues.”  The first section was about staffers retiring and leaving the Register.  I was the closer.  (Today, Chris Reed is doing a wonderful job at the San Diego Union-Tribune.)

Then there’s the departure of a relative youngster, Chris Reed, who is too smart for his own good (ask him to multiply any two three-digit numbers in his head, and see how long it takes) and loves to poke at politicians in his “Unspin” column in our Sunday editorial pages.  When county Treasurer John Moorlach heard Reed was leaving to become a full-time writer on the San Diego Union-Tribune editorial staff, he sent the following e-mail:  “Can I help him pack?”

The Long Beach Press Telegram’s second editorial of the day was titled “Pension disease spreads – Orange County is a close second to San Diego in worst-managed governing.”  Here is an edited version:

                We no longer have to look all the way south to San Diego for an awful example of local government. Orange County is a close second.

Of course, Orange County has been there before, in a spectacular bankruptcy 10 years ago that caught the imagination of politicians and taxpayers. The county still is paying off that indebtedness, which now amounts to $800 million.

Peanuts. As described in a Grand Jury report this week entitled “Another County Crisis,” the estimate for Orange County’s latest fiasco is an unfunded liability of $2.3 billion.  This is the result of a single action last August by the county’s Board of Supervisors:  a 62 percent increase in pension benefits for members of the county’s public-employee unions.

Opposing the increase were then-Supervisor Chuck Smith, Supervisor Chris Norby, Treasurer John Moorlach (who stood to gain from the increase), younger union members (who correctly figured this was a Ponzi scheme that couldn’t last), the Orange County Register’s editorial pages, and our humble editorial-page voice chiming in from the sidelines.

Now, according to Moorlach and an Orange County Grand Jury report, the county’s financial problems make the bankruptcy of a decade ago look modest by comparison.  We told you so, a Register editorial said Thursday in a tone of deep chagrin.

Negative role models abound.  What the state needs now are some positive examples.  Who will go first?

The most interesting article of the day, however, would provide a career-changer for me.  It was “Harman to run for Senate seat – Huntington Beach assemblyman says he’ll campaign for state Sen. John Campbell’s post” by Alicia Robinson in the Daily Pilot.  Congressman Cox’s possible appointment to head the SEC started the dominoes rolling.  If Harman succeeded then Sen. John Campbell, who was now running for Cox’s seat, then my only viable opponent for Supervisor would be eliminated.  This would have assured a less hostile campaign to succeed Supervisor Silva.  (Just to show that I’m not so self-serving, I would end up endorsing Harman’s opponent in that race for Senate.)  Here are the closing paragraphs of the article.

                The news of Harman’s Senate campaign could be good for Orange County Treasurer-Tax Collector John Moorlach, who is so far the only other candidate in the 2nd District supervisor’s race.

                Moorlach, 49, has racked up 110 endorsements – including one from Cox – and is piling up political capital now that the county is facing a pension-related fiscal crisis.

                After he prophesied the bankruptcy that hit the county in 1994, Moorlach was appointed treasurer to clean up the damage.

                A recent decision to increase pension payouts has left the county looking at a deficit of $2.34 billion, possibly more, and people are again turning to Moorlach for solutions.

                “For me, I want to be part of the leadership solution,” he said.  “I’m not being effective, obviously, from my bully pulpit because I’ve been screaming from here, and three supervisors didn’t take my advice, and now they’ve put the county in jeopardy.”

July 3

The OC Register’s second editorial in their Sunday edition was titled “A do-nothing budget.”  Since we’re on the budget topic, the opening paragraph is on the mark.  My quote is also included, which is also on the mark.

When reformers say that government ought to operate like a business, they reflect a decent sentiment, but one that is unrealistic.  Governments always act like governments; officials love to spend taxpayers’ money.  It takes a crisis to cause government to tighten its belt, and even then it’s no certainty that tightening will take place.

                “This should have been a pre-emptive strike,” said Treasurer John Moorlach.  He believes the board should have been preparing itself for increased pension liabilities.

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