MOORLACH UPDATE — Road to Consensus — August 17, 2015

The major dailies around the state have provided their editorial perspectives on the final few weeks of the Legislative Session, including the San Diego Union-Tribune Editorial Board.

The Union-Tribune’s piece focused on the deficiencies at Caltrans for which I am trying to rectify in my legislation, Senate Bill X1-9. It will be heard in the Transportation Committee’s Special Session meeting on Wednesday. You can follow it on the CalChannel.

The Sacramento Bee also provides a great overview, and makes a mention of my initiative for the Transportation Special Session, in the first piece below. I’m back in Sacramento today and the next four weeks will be packed, just like today was.

This leads into the second piece. Experienced Sacramento watchers told me right away that I was going against a very powerful public employee union with SBX1-9. I am constantly being told that the Professional Engineers in California Government (PECG) union literally runs Caltrans. I am honored to have the President of PECG go after me, falsely, but going after me all the same, with a letter to the editor in Sunday’s OC Register Commentary Section.

Let’s review two key issues that are raised. The first is that I have said nothing about utilizing no-bid contracts. My bill is only about the breadth of contracting opportunities – a legitimate policy discussion – and not about how the bidding process actually works. If no-bid contracting is something that Caltrans does as a policy, then there is even more restructuring that needs to be done within this agency. However, according to Caltrans regulations on their own contracting policy, there are several stages of qualifying contracts and if Caltrans is following the process, then there are negotiations and the cost should be held to reasonable levels.

The joys of outsourcing is that you can quickly and adeptly expand or reduce the number of contractors. This is not as easily done with employees. Consequently, Caltrans has 3,500 more employees than it needs. A simple calculation of this opportunity cost, of roughly $500 million per year, brings the costs to $143,000 per employee.

The committee analysis on my bill says that state staff costs $158,000 per employee per year. The low-state numbers are usually averages of all ranges of state engineer costs and do not reflect the higher costs of specialized needs that a contractor can provide with more flexibility. Further, when a contract is complete, there are no lingering costs. But when state employees are hired for long-term positions, Caltrans cannot justify their salaries when they are not working on actual projects.

The union argues that the cost per employee is less than that of private sector architects or engineers. But, the union is relying on pre-1999 data, so the hefty pension plan contributions are understated in their numbers. Other studies suggest that the in-state employee costs may be higher when long-term pension costs and debt payments are fully considered.

I’ve run a department. Nearly every metric that I’ve reviewed coming out of Caltrans has been screaming for a reorganization of this agency. With an opportunity to provide them with another $6 billion per year, it would be a great move on the part of management and the PECG union to educate the public on how it will efficiently manage this potential income stream with the lowest overhead expense ratio possible.

Public employee unions exert strong influence over the majority in Sacramento, and these unions are focused on gaining even higher compensation for their members, not necessarily on creating efficient, effective government. So, let’s see how my bill fares in Senate Committee Wednesday. It would be a glimmer of hope if a Democrat or two voted to support SBX1-9. But, if we can’t convince the taxpayers that Caltrans is worthy of their hard-earned tax dollars, then why should we impose another tax on them?

For more on the real facts about Caltrans, see MOORLACH UPDATE — Turn Your Radio On — August 14, 2015 John Moorlach, MOORLACH UPDATE — Transportation Strategies — August 13, 2015 August 13, 2015 John Moorlach, MOORLACH CALTRANS UPDATE — Cost Overruns — August 12, 2015 John Moorlach, MOORLACH UPDATE — Hitting the Brakes — August 11, 2015 John Moorlach, MOORLACH UPDATE — Reduction Tax — August 8, 2015 John Moorlach, MOORLACH UPDATE — Caltrans Diet — August 7, 2015 John Moorlach, and MOORLACH SENATE UPDATE — Transportation Challenges — August 6, 2015 John Moorlach,

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The third piece is from Calpensions, an excellent resource on pension related topics (see MOORLACH UPDATE — Calpensions — October 15, 2012 October 15, 2012 John Moorlach).
It was also published in PUBLIC CEO, another excellent resource for municipality watchers. It provides an update on pension reform efforts in the city of San Jose and gives a discussion on the "California Rule."

The Corona del Mar Today has an announcement for an upcoming speaking engagement. If you’re able to attend, it would be an honor to see you there. After my first Session, I’m sure I’ll have plenty to talk about. It’s the fourth and final piece below.

Legislators have long to-do list, little consensus

Legislators return for a month, facing all manner of issues

Consensus will be tough to reach on several important matters

Assembly members will, however, spend time raising money

California lawmakers will vote to cut gasoline use by 50 percent, or not.

They’ll impose new taxes on cigarettes and health care plans, and increase payments to doctors and others who care for poor people and developmentally disabled people, or they won’t.

Lawmakers and lobbyists will return to the Capitol today for a final month of horse-trading and buttonholing. Whether the big deals come together is unclear. But some should, including one to pay for better roads and highways.

Highway funding is, however, a knotty problem. Because it would involve some form of tax increase on gasoline consumption and driving, lawmakers must approve any deal by a two-thirds margin. That means Republicans will matter.

Although Republicans always are hesitant to raise taxes, there are bargaining chips. One could involve a proposal by freshman Sen. John Moorlach, an anti-tax hawk from Orange County, to reduce the size of Caltrans. Democrats generally are unwilling to pare back the public employee workforce in any significant way.

A related issue involves Senate President Pro Tem Kevin de León’s Senate Bill 350 to reduce greenhouse gas emissions by forcing huge reductions in gasoline use – and thus gas tax collections. The oil industry is spending millions on an ad campaign warning that SB 350 would lead to gasoline rationing.

We support de León’s efforts to curb greenhouse gas and reduce reliance on petroleum, but questions remain about how the state would attain the goals without imposing undue costs on lower-income Californians.

Legislators also will spend time negotiating how to best spend the $2 billion-plus generated by California’s cap-and-trade program, which imposes fees on polluters, including motorists, to offset their emissions. The cap-and-trade spigot would shut in 2020 without legislation to extend it. Again, that would require a two-thirds vote.

All of the above would be plenty to keep legislators busy. But they will need to multitask. Doctors and hospitals are angling for increases in payments to care for Medi-Cal patients, as are workers who care for developmentally disabled people. Where that money would come from is not clear.

There’s renewed talk of raising taxes on tobacco. If history is a guide, legislators also will fail to approve a tobacco tax hike. But tobacco companies’ success at blocking tax hikes won’t last forever. They ought to compromise and avoid a likely initiative war in 2016.

A pressing but arcane issue involves how to impose a managed care organization tax to help fund health care for poor people. The federal government has told the state that its method of taxing plans failed to comply with federal law.

If the tax issue not resolved, there would be a $1 billion-plus hole in next year’s budget, forcing Gov. Jerry Brown to propose cuts in the budget he releases in January. Better to resolve the tax question this year.

There’s much more: school funding, affordable housing, marijuana regulation, and maybe an Indian gambling compact or two. And there will be campaign money to raise.

The Senate has imposed a fundraising moratorium on its members for the final month. Assembly members, however, will be casting pivotal votes on bills, and scurrying to restaurants and bars to raise money from people affected by those votes. The unseemly practice ought to end.

The agenda is long: health care, transportation, climate change. There’s plenty to do. Or not.

OC Register Logo

Letters: Taxes wasted on no-bid contracts

Re: “Caltrans needs to go on a staffing diet” [Opinion, Aug. 7]: California’s roads and bridges are in disrepair. State and federal gas taxes have not been changed in over 20 years, but vehicle miles driven have increased by 27 percent. As revenue drops due to fuel efficiency standards and population increases, highway maintenance and rehabilitation fall further behind each year. California motorists spend $18.4 billion each year on extra vehicle repairs due to the poor condition of our roads and lose billions more in time spent in congested traffic.

While more funding is needed, policy makers should take a close, hard look at the other side of the coin – how are transportation funds currently being spent? Are we getting the biggest bang for our transportation buck?

One clear example of wasting taxpayer dollars is the award of no-bid state highway design and inspection contracts. This year’s state budget shows that, when Caltrans outsources an engineering job for a year, it costs $237,000. Having the same work performed by an engineer employed by and loyal to the public costs $116,000. More than 1,000 of these jobs are outsourced by Caltrans each year, resulting in a waste of more than $100 million, which could be utilized for constructing projects to improve safety and reduce traffic congestion. Yet, the practice continues.

Why does it cost so much more to outsource the work? One reason is that the contracts are not competitively bid. Construction contracts are awarded to the qualified firm with the lowest cost to the taxpayer. However, engineering services contracts, such as design and inspection, are outsourced without competitive bidding. The agency can pick whatever contractor it wants, regardless of cost. No wonder it costs twice as much!

Public opinion polls show that 80 percent of Americans want government contracts, including those for engineering services, to be competitively bid. Nevertheless, newly-elected state Senator John Moorlach, R-Costa Mesa, would go the other way. He has authored a Senate bill which would mandate that the no-bid contracting double, then double again over the next six years. This would quadruple the current waste of taxpayer dollars!

It is more than a little surprising that an Orange County Republican legislator would author a bill that would eliminate competitive bidding and mandate the waste of taxpayer funds. He calls it “common sense.”

It is unlikely that Sen. Moorlach’s bill will become law, or even be seriously considered by his colleagues. However, it does demonstrate that sometimes those who campaign on encouraging competition and protecting the taxpayer behave quite differently once they are elected.

Roy Flores

San Diego

President, Professional Engineers in California Government

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PublicCEO

San Jose drops appeal of pension ‘California rule’

Some thought an appeal of a court ruling blocking a key part of a San Jose pension reform could lead to a high court review of the “California rule,” an issue in an initiative ballot summary issued last week by Attorney General Kamala Harris.

But dropping an appeal of the superior court ruling is part of a settlement of union suits against the voter-approved pension reform that, under a San Jose city council agreement last week with police, could soon be implemented by court action.

The “California rule” is a series of state court decisions widely believed to mean that the pension offered on the date of hire becomes a vested right, protected by contract law, that can only be cut if offset by a new benefit of comparable value.

Because of the rule, most cost-cutting pension reforms are limited to new hires, which can take decades to get significant savings. The rule prevents what the watchdog Little Hoover Commission and others say is needed to get immediate savings.

Namely, cut the pensions that current workers will earn in the future, while protecting the pension amounts they have already earned. It’s allowed in private-sector pensions and all but a dozen states that have something like the “California rule.”

A pension reform approved by 69 percent of San Jose voters in 2012, Measure B, used an option to cut pensions current workers earn in the future: contribute up to an additional 16 percent of pay to continue the current pension or switch to a lower pension.

While approving other parts of the measure, Santa Clara County Superior Court Judge Patricia Lucas ruled in December 2013, citing previous “California rule” court decisions, that the option violated the vested rights of current workers.

Former San Jose Mayor Chuck Reed, the Measure B lead author, and others have said the “California rule” decisions made in different circumstances in the distant past, one in 1947, could have a different outcome if reviewed by a high court now.

For example, a legal scholar, Amy Monahan, argued that by imposing a restrictive rule without finding clear evidence of legislative intent to create a contract, California courts broke with traditional contract analysis and infringed on legislative power.

“California courts have held that even though the state can terminate a worker, lower her salary, or reduce her other benefits, the state cannot decrease the worker’s rate of pension accrual as long as she is employed,” Monahan said.

In addition, under the “California rule” a pension increase on the job becomes a vested right that can‘t be cut, even if it’s retroactive (such as SB 400 in 1999), not paid for with employer-employee contributions, and creates an immediate pension debt.

And the “California rule” decisions were made by judges who were in the state pension system. As Orange County unsuccessfully tried to overturn a retroactive increase for deputy sheriffs in 2011, an attorney for the deputies noted the conflict of interest.

“Miriam A. Vogel, a retired Court of Appeal justice, clearly told her former colleagues that the court’s decision would affect every pension in the state of California: “(I)t would affect yours, it would affect mine,” former Orange County Supervisor John Moorlach (now a state senator) wrote in the Orange County Register.

Litigation of Measure B was an issue in the San Jose mayor race last fall. The winner, Sam Liccardo, a Reed ally, said “a mayor who will fully litigate — and implement — Measure B reforms” is needed to solve deep city budget problems.

The loser, Dave Cortese, backed by public employee unions, advocated settling the Measure B lawsuits, warning that pension cuts were causing the city to lose police officers, endangering public safety.

“Public unions assert that pensions are inviolable, but California’s high court has never decided whether future benefits are protected under the state constitution,” a Wall Street Journal editorial said after Liccardo’s victory.

A need to rebuild a police department, which dropped from 1,400 members in 2009 to about 960 last month, was said to be a main driver of the police and firefighter settlement negotiated by new city staff and new union leaders.

Firefighters approved the settlement last month. Police said they would not ratify an 8 percent pay raise unless the city agreed to have a court invalidate Measure B and replace it with the settlement.

The city wanted to wait until the next scheduled election, November 2016, for voter approval. Last Friday the city council agreed to ask the court to make the change. The police union was voting on the package over the weekend.

Liccardo and Reed said in an op-ed article in the San Mercury News on Aug. 7 that the settlement achieves their goals of reducing “unsustainable” retirement benefits, not adding to $3 billion in unfunded retirement debt, and rebuilding the police force.

An independent actuary expects the settlement to cut costs $1.7 billion over the next three decades compared to police and fire benefits in 2012, the two men said. More savings may come from negotiations with nine other city unions.

Lower pensions for new hires, competitive with other cities, are expected to save $1.15 billion over 30 years, cuts in retiree health care $244 million, and the elimination of a “bonus” pension check $270 million.

“The agreement would not include savings contemplated by Measure B’s mandate for employees to pay up to an additional 16 percent of their salaries for pensions,” Liccardo and Reed said in the article.

“We would need to chase those savings down a long and perilous road, however, spending millions in litigation over several years to appeal to the California Supreme Court. If we failed, we’d lose the $1.7 billion in savings achieved by this settlement, not to mention many more longtime employees who would be likely to resign.”

The city reportedly has spent $4 million on Measure B legal fees. The police union president, Paul Kelly, told reporters last week he would have taken the settlement deal four years ago before Measure B.

In the August issue of the San Jose Police Officers Association publication, Vanguard, Kelly said the union had proposed pension reforms saving tens of millions: “Reed preferred to roll the dice, putting forward the disastrous Measure B. He lost.”

Last week Attorney General Kamala Harris issued a ballot summary of a statewide pension initiative proposed by a bipartisan group led by Reed, a Democrat, and former San Diego city councilman Carl DeMaio, a Republican.

The “Voter Empowerment Act of 2016” would require voter approval of pensions for new state and local government employees, government paying more than half the cost of new hire retirement benefits, and any pension increase for current workers.

The first sentence of the Harris summary of the initiative: “Eliminates constitutional protections for vested pension and retiree healthcare benefits for current public employees, including those working in K-12 schools, higher education, hospitals, and police protection, for future work performed.”

Reed and DeMaio say the initiative would not overturn the “California rule” and allow cuts in the pensions current workers earn in the future. Harris agrees with union attorneys who say that door is opened by giving voters the right to set pay and benefits.

Why is overturning the “California rule” an issue? For one thing, hard-hitting opposition television ads could feature police, firefighters and others held in high public regard warning that their promised pensions could be cut.

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com.

CORONA DEL MAR TODAY

Senator to Discuss “State of State” at CdM Chamber Luncheon

The Corona del Mar Chamber of Commerce’s September networking luncheon event will feature California Sen. John Moorlach (R-Costa Mesa), according to an event flier.

The event will take place Tuesday Sept. 15, and tickets are $30 for chamber members and $40 for guests. Check-in and networking will take place from 11:30 a.m. to noon, followed by lunch and the program until 1:15 p.m.

Moorlach, the event flier said, will deliver a “State of the State” address.

The event will take place at Fig & Olive at 151 Newport Center Drive.

Organizers expect the event to sell out and encourage early reservations. Advance payment is required, and anyone with a vegan menu requirement should notify organizers in advance. For more information or to reserve a spot, call (949) 673-4050.

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