MOORLACH UPDATE — Upcoming SB 1251 Hearings — April 9, 2016

The OC Register‘s Commentary section provides a thorough review of the upcoming anticipated impacts from the implementation of the state’s new minimum wage increase in the first piece below (see MOORLACH UPDATE — SB 3 Reverberations — April 2, 2016 april 2, 2016 john moorlach, MOORLACH UPDATE — April Fools’ Day — April 1, 2016 april 1, 2016 john moorlach, and MOORLACH UPDATE — $15 Minimum Wage — March 29, 2016 march 29, 2016 john moorlach).

The Orange County Breeze provides my recent e-mail blast on SB 1251 in the second piece below. In the state Senate, bills usually receive at least one Committee’s review and approval before they are sent to the Floor for a vote by the entire body. A bill must be approved by the Committee before it can go to the Floor. Sometimes a bill gets two or three different Committees, if that bill covers areas that impact multiple areas of concern covered by those standing committees. For SB 1251, it has been assigned to four committees. One gets the sense that if one wanted a bill killed, make it go through several committees. As surely, enough members of the majority party will vote as instructed.

The first hearing for SB 1251 is Monday afternoon in the Public Employment and Retirement Committee, on which I was recently appointed. If it receives a majority vote, it goes to the Governmental Organization Committee Tuesday, the next morning.

SB 1251 is rather simple. Its title is "The Financial Transparency Act," and it will require that a few key items of information be given to Californians in their Voter Pamphlet when they vote on ballot propositions every two years. It’s a way to provide a dashboard of critical amounts impacting the state’s finances. The goal is to make the voters more fully aware of the State’s financial status and how it is doing every two years in addressing these statistics.

Allow this Senator, formerly practicing as a Certified Public Accountant (CPA) and Certified Financial Planner (CFP) to focus on one number. The state’s 2015 Comprehensive Annual Financial Report (CAFR) can be found at http://www.sco.ca.gov/Files-ARD/CAFR/cafr15web.pdf. On page 30 of the report, the state’s total assets are $203,859,139,000. On page 31, the total liabilities are $246,276,952,000. This means that the reported liabilities (all of them are not included in the CAFR) exceed the state’s assets by $42,417,813,000.

When liabilities exceed assets on a balance sheet, the entity is usually a candidate for bankruptcy. California has 43 billion reasons to be concerned about its financial condition. But, it is highly unlikely that the residents know how dismal the state’s financial condition really is.

The third figure provided in the piece below is the Unrestricted Net Deficit for Governmental Activities, which is found on page 32 of the CAFR. The state has $100,694,652,000 invested in fixed assets, like roads and buildings. It has $26,632,502,000 in funds that are restricted because they either belong to someone else (like the Federal Government) or are designated for specific purposes. That leaves an Unrestricted Net Deficit of $169,744,967,000. Now California residents have 169 billion reasons to be concerned.

So, why not give this data to the voters? Who would want to keep this information from them? Well, it appears that the public employee unions are very concerned about it and are vociferously opposing SB 1251. I am honored. But, since they played a big role in getting your state into this fiscal quagmire, they should want to keep it under wraps. Keep me in your thoughts and prayers Monday afternoon.

For additional background information on SB 1251, see MOORLACH UPDATE — Baring Data with SB 1251 — March 21, 2016 march 21, 2016 john moorlach and MOORLACH CAMPAIGN UPDATE — Don Quixote and SB 1251 — March 15, 2016 march 15, 2016 john moorlach.

For the genesis of this simple idea, see MOORLACH UPDATE — $117B Unrestricted Net Deficit — January 9, 2015 january 9, 2016 john moorlach.

For a history of California’s Unrestricted Net Assets/Deficit over the past 20 years, see MOORLACH UPDATE — Budget Choices — June 7, 2015 june 7, 2015 john moorlach.

Higher minimum wage equals higher prices, more taxes

By JOHN SEILER / Staff Columnist

I have dinner once a week with some friends here in Orange County. I set a limit of $20 for beer and food, or $80 a month. When the state minimum wage jumped to $10 an hour from $8 a couple years back, the restaurants increased their prices. So I cut back from a full meal to appetizers. It’s less enjoyment, but, as President John F. Kennedy said, “Life is unfair.”

I’ll have to make further adjustments as California’s minimum wage will rise again, to $15 an hour by 2022. The Register reported that, once the full increase to $15 hits, about 605,000 Orange County workers will get raises, a third of the workforce. Gov. Jerry Brown, who signed the new law, and California legislators who passed it, seem not to care that most folks in the state live on limited incomes. When prices go up, purchases go down.

That also happens to those who will “benefit” from the minimum wage increase, Raymond Sfeir told me; he’s a professor of economics and management science at Chapman University. “The increase in costs will erode the increase in the incomes those paid the minimum wage will get,” he said.

The increase probably won’t kill many jobs in Orange County and the rest of California, he said. It’s hard to haul a restaurant or surf shop to low-tax South Dakota. But the creation of some new jobs here “no longer will be undertaken.” Companies will expand in other states or countries. Or new companies just won’t be formed at all because the costs will be too high.

“No doubt those with higher minimum wages will have less overtime,” Sfeir added. Moreover, the higher wage will push up the wages of those already making $15 or more an hour. Sfeir said they will ask, “Why can’t I also get a raise?”

A manager currently making $15 an hour could end up making no more than his employees. But why put up with the headaches and risks of management if there’s no extra pay involved? So the pay inflation will run up the salary ladder, with the higher costs passed on to customers.

He brought up other increases: Higher pay means more taxes taken out by government at all levels. The employer part of the Social Security-Medicare tax is 7.65 percent. And according to a July 2015 report by the Workers’ Compensation Insurance Rating Bureau, the average workers’ comp cost to California employers is 3.07 percent. Add the two, and we get 10.72 percent. Which comes to another 54 cents on that $5.

So the cost to the employer of the $5 jump in the minimum wage really is $5.54.

Companies adjust. Sfeir pointed out that in Seattle, San Francisco and other areas already implementing minimum-wage boosts, restaurants have substituted a 20 percent service charge for tips. The money sometimes doesn’t even make it to the waiters and waitresses, but is kept by the employer.

People especially hit by the higher wage will be retirees in such areas as Laguna Woods and Leisure World, state Sen. John Moorlach told me. The Republican from Costa Mesa voted against the increase.

“We have a growing population in the 65-and-older category who haven’t been getting many increases in their Social Security,” he said. According to the Social Security website, the compounded cost-of-living adjustments from 2009-15 add up to just 8.8 percent. Given current low inflation, it’ll likely be something like that during the next 7 years – as the minimum wage rises 50 percent, or more than five times as much.

“How do they get their lawns mowed, or enjoy their occasional restaurant senior meal?” Moorlach asked.

He added that, in arguing against the $15 minimum wage on the floor of the state Senate, he brought up likely increases in underground economic activity. If you hire someone outside the official government system to put up your sidewall or fix your plumbing, you not only avoid paying the $15 minimum wage, you don’t have to pay the taxes and workers’ comp, either. That’s for otherwise-legal occupations.

Then there are illegal activities. ABC/TV 10 in Sacramento reported, “Poachers steal an estimated $100 million worth of wild animals and fish every year in the state. Many of the thieves are repeat offenders, according to California Fish and Wildlife officials.” The higher minimum wage will boost the cost of legal fishing, making poaching even more tempting.

And let’s not forget the $3.6 billion a year in additional costs the state government itself will have to pay for its own workers making higher minimum wage, as the Legislature itself calculated. Will that be paid for by cutting government or raising taxes? You don’t have to be an economist to know the answer.

Public employee unions vow to kill the California Financial Transparency Act

Public employee unions vow to kill the California Financial Transparency ActGOVERNMENT

California has over $250 billion in debt and unfunded liabilities, most of which is state public employee pension costs.

That’s why public employee unions are working to kill SB 1251 (Moorlach), which establishes the California Financial Transparency Act and requires the state’s financial data to be printed in the voter information pamphlet.

Opposition letters from unions have been pouring in, claiming this is “superfluous information” that “convolutes issues” and creates “unnecessary confusion for voters,” and that providing such information “sets a bad policy precedent.”

What the unions really are saying is they don’t want voters knowing just how badly union control in Sacramento has run the state into debt. Here is the data proposed to be printed in the state voter information pamphlet:

State Budget Fiscal Year 2014-15
Revenue $ 246.8 billion (CAFR)

Expenditures 271.3 billion (CAFR)

Unrestricted net assets/deficit (-169.0 billion) (CAFR)

Current State Debts

Unfunded pension liabilities $ 180.0 billion (CalPERS, CAFR, UC)

Unfunded retiree medical 74.2 billion (CAFR)

benefit liabilities

Infrastructure deficit 77.0 billion (DOF)

Outstanding bond debt 82.0 billion (CAFR)

More information on SB 1251 can be found HERE.

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

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