MOORLACH UPDATE — Budget Hearings — May 14, 2016

The 2016-17 Budget will be my focus for the next few weeks. In fact, I have Budget and Fiscal Review Subcommittee One on Education meetings on Tuesday, Wednesday and Thursday. The question is, will these meetings, which I serve as Vice Chair, crowd out my calendar on those days?

The Governor introduced the May Revise yesterday morning (see MOORLACH UPDATE — May Revise — May 13, 2016 may 13, 2016 john moorlach). I agree with his approach, but would be emphasizing spending reductions and debt reduction in a much stronger manner.

My office is looking at how the budget trends look going ten years into the future. Our preliminary results do not look good. They confirm the Governor’s fears, and then some. I had the chance to be questioned on my ten-year forecasting concerns yesterday afternoon on KNX 1070 AM (see http://moorlach.cssrc.us/content/senator-moorlach-joins-knx-1070-discuss-gov-browns-may-revise).

One of the questions I was asked by Mike Simpson and Brian Ping was my concerns about a potential recession. Having twelve years of economic forecasting experience as the Orange County Treasurer, you learn that the trend is your friend. If it were not for the economic powerhouse of Silicon Valley, California would not be faring all that well. But something is happening in this robust area, as the recent slide below attests.

This is just one of many indicators that we should be monitoring and is why I believe the state should be cutting spending and attacking debt reduction more aggressively.

California still owes the Federal government billions for unemployment benefits, causing employers to unnecessarily pay a higher FUTA payroll tax (Federal Unemployment Tax Act).

The new assessment released in the last week shows that the unfunded retiree medical liability rose $6 billion in the last twelve months, an 8 percent increase! On a per capita basis, every resident now owes $2,000 each if Californians were to pay the entire obligation today.

If CalPERS only breaks even on its investment returns by the end of its fiscal year on June 30th, then its total unfunded liability would increase by some $30 billion ($400 billion times 7.5%)!

These are just a couple of examples why I believe I have every right to shout,
"ICEBERG DEAD AHEAD!"

The Orange County Breeze provides local press release responses to the Governor’s May Budget Revision in the first piece below. Fox & Hounds kindly published my five concerns in the second piece below.

For a fun diversion from the stress of turning the State’s fiscal ship of state around, I enjoyed an annual treat and tradition on Thursday evening. My wife and I attended the Annual Costa Mesa Mayor’s Dinner.

Long-time friend Hank Panian was recognized. When I ran for Orange County Treasurer in 1994, Hank was serving on the Mesa Consolidated Water District Board of Directors, an agency which did not invest in the Orange County Investment Pool. He and then Finance Director, Margaret Rutledge, were a big help to me in my research during the campaign (see the Costa Mesa Breeze interview in MOORLACH UPDATE — CalWatchdog — February 23, 2010 february 24, 2010 john moorlach).

The Daily Pilot has a photo of me making a presentation to George and Julia Argyros in the third piece below (which is provided in its entirety). After being elected to the State Senate and inheriting an awkward office space in the District, I really wanted to move to a more efficient floor plan in the city of Costa Mesa, where I reside. We are now in an Arnel building on South Coast Drive, directly across from the Argyros project known as Metro Pointe. George and Julia have been great supporters and a source of encouragement to me over the years and it was a wonderful evening to recognize them and Hank (and his bride of 63 years, Barbara).

California Governor releases May Budget Revision

California Governor releases May Budget RevisionGOVERNMENT

As revenues fall short of projections and California stretches into an eighth year of economic recovery, Governor Edmund G. Brown Jr. today released a revised state budget that funds core programs while paying down debt, saving money and holding the line on new obligations.

“The surging tide of revenue has begun to turn,” said Governor Brown. “Quoting Aesop’s fable of the ant and the grasshopper: ‘It is best to prepare for the days of necessity.’”

When Governor Brown took office, the state faced a massive $26.6 billion budget deficit and estimated annual shortfalls of roughly $20 billion. These deficits, built up over a decade, have now been eliminated by a combination of budget cuts, temporary taxes and the recovering economy.

Barring any significant changes, the budget over the next two years remains in balance. However, in the years that follow, the state’s commitments will exceed expected revenues with annual shortfalls forecasted to exceed $4 billion by 2019 – or worse with an economic slowdown or recession.

Significant details of the May Revision:

The Challenge of Fiscal Balance

The May Revision revenue forecast has been reduced by $1.9 billion, reflecting poor April income tax receipts and more sluggish sales tax receipts than expected, while Proposition 2’s required contributions have been reduced by a combined $1.6 billion. Even if the voters pass an extension of taxes, the longer-term budget outlook would be barely balanced. Until the voters decide in November whether temporary taxes should be extended, the May Revision reflects the principle that no significant new ongoing spending commitments should be made.

Investing in Education

Under the May Revision, the minimum guarantee of funding for K-14 schools is expected to grow to $71.9 billion in 2016-17, an increase of $24.6 billion over the last five years (52 percent). For K-12 schools, funding levels will increase by over $3,600 per student in 2016-17 compared to 2011-12 levels. This reinvestment provides the opportunity to correct historical inequities in school district funding with continued implementation of the Local Control Funding Formula. The May Revision provides $2.9 billion in new funding, bringing the formula’s implementation to nearly 96 percent complete.

The Budget also invests in the state’s higher education system to maintain the quality and affordability of one of California’s greatest strengths. The Budget keeps tuition at 2011-12 levels and commits $25 million in new one-time funding for the California State University to reduce the time it takes a student to successfully complete a degree.

Reducing Housing Costs

Approximately 1.5 million low-income California households pay more than half their income in rent, straining their ability to pay for other essential household expenses. In addition, the state has a disproportionately high share of the nation’s homeless and chronically homeless populations. The May Revision reflects $3.2 billion in state and federal funding and award authority for various affordable housing and homelessness programs. This amount includes recently created programs that pay for affordable housing in sustainable communities and housing for veterans.

Local land use permitting and review processes have lengthened the approval process and increased production costs. The May Revision proposes additional legislation requiring ministerial “by right” land use entitlements for multifamily infill housing developments that include affordable housing. This would help constrain development costs, improve the pace of housing production and encourage an increase in housing supply.

The May Revision also endorses a $2 billion bond from a portion of future Proposition 63 mental health revenues, which would enable the Department of Housing and Community Development to develop and administer homelessness and affordable housing programs with a particular focus on chronic homelessness. The May Revision proposes first-year funding of $267 million from the bond proceeds.

Counteracting Poverty

The state has taken historic steps in recent years to assist the state’s neediest residents. The implementation of health care reform has increased coverage under Medi-Cal to an additional 6 million Californians in just four years. The Local Control Funding Formula is concentrating the greatest school funding to students with the greatest need. The state guaranteed that 6.5 million workers are eligible for paid sick leave. The 2015 Budget Act created California’s first-ever earned income tax credit to help the poorest working families and encourage more families to claim the existing federal credit.

The January Budget proposed the first state cost-of-living increase for Supplemental Security Income/State Supplementary Payment (SSI/SSP) recipients since 2005. In April, the Governor signed legislation that will raise the minimum wage for all workers to $15 per hour as soon as 2023.

Accounting for the full implementation costs, the General Fund has incurred new obligations in the effort to counteract the effects of poverty totaling more than $19 billion (about $10.7 billion of which will be paid for through Proposition 98 funds).

Strengthening Infrastructure

The May Revision continues to reflect the Governor’s transportation package that would provide $36 billion over the next decade to improve the maintenance of highways and roads, expand public transit and improve critical trade routes. The increased funding would be coupled with Caltrans efficiencies, streamlined project delivery and accountability measures. The budget also includes $737 million ($500 million General Fund) for critical deferred maintenance at levees, state parks, universities, community colleges, prisons, state hospitals and other state facilities.

Fighting Climate Change

The May Revision supports California’s ambitious policies to advance clean energy with a $3.1 billion cap-and-trade expenditure plan that will reduce greenhouse gas emissions through programs that support clean transportation, promote transformational sustainable communities, reduce short-lived climate pollutants and protect natural ecosystems. Over multiple years, the cap-and-trade program gives the state the chance to transform communities – particularly those disadvantaged ones – into innovative, sustainable economic centers.

Additional details on the May Revision can be found at www.ebudget.ca.gov.

The preceding article was released by the Office of the Governor of California.

Huff issues statement in response to the Governor’s May Budget Revision

Senator Bob Huff (R-San Dimas) issued the following statement in response to the Governor’s May Budget Revision:

“With revenues now projected to be $2 billion lower than the January Budget forecast, the May Revise provides a sobering reminder that revenues can drop just as quickly as they grow. Still, we are in very good financial shape and if we budget responsibly, build our state “rainy day reserve” fund, and focus on reducing the over $200 billion in budgetary debt and unfunded liabilities we will be able to handle any economic downturn that comes our way.”

“However, I am concerned about demands by members of the majority party for more than $3 billion of new spending on top of the Governor’s record high spending level of $123 billion. This level of state spending is unsustainable and will guarantee that California returns to an era of budget cuts and tax increases. Budget deficits are not an act of God – they are the result of the actions we take today. I believe we can work together to develop a responsible budget that addresses our shared priorities of fiscal stability and prosperity for all Californians.”

Senator Huff represents the 29th Senate District covering portions of Los Angeles, Orange and San Bernardino Counties. Follow Senator Huff on Twitter at @bobhuff99.

Senator Moorlach responds to May Budget Revision

Senator John Moorlach (R-Costa Mesa) released the following statement today in response to California Governor Jerry Brown’s 2016-17 budget proposal:

“I appreciate the Governor’s call for fiscal prudence in his May Revision of the 2016-2017 budget; however, this fiscal restraint does little to address our state’s unaddressed run-up of debt. If managing the budget is ‘like riding a tiger,’ looking out ahead ten years from now is like standing on the deck of the sinking Titanic.

“According to the most recent Comprehensive Annual Financial Report (CAFR), California has a $170 billion unrestricted net deficit, an increase of $54 billion since last year, the largest net deficit of all 50 states. From any reasonable accounting standard, there are no new funds to spend. California is ‘maxed out.’ We’ve got to aggressively address the state’s growing unfunded liabilities. These liabilities are the very factors that threaten our short and long term financial health, and challenge other budget priorities as we anticipate the next inevitable economic down turn.

“California’s unrestricted net deficit went from $116 billion to $170 billion since last year’s CAFR report ($4,374 per person). And that’s before fully adding in the estimated $80.3 billion in retiree medical unfunded liabilities.

“When will California acknowledge it needs reform? The time has come for state leaders to establish a 10-year financial workout plan to get our fiscal house in order — one that establishes a common set of goals and a framework by which all legislative and executive actions can be measured. Only then can we truly leverage our state’s resources to solve both our short and long term fiscal problems.

“This should be the legacy Governor Brown desires to leave, not the current burden of debt weighing down our state. I’m ready to work together with my colleagues in the legislature to change the script and leave a better future for our children.”

Assemblyman Travis Allen’s Response to the Governor’s May Revise

The Office of Assemblyman Travis Allen released the following response to the Governor’s May Budget Revision:

“Today, Governor Jerry Brown released his May Revise for projected 2016-17 state spending, which shows that California’s tax revenues are $1.9 billion lower than anticipated. Despite this significant loss in expected revenue, the Governor only revised California’s record spending down by $500 million from his previous budget proposal in January. Perhaps reducing spending by $500 million when tax revenues are down by $1.9B makes sense under California’s new Common Core curriculum.

“Additionally, the Governor again acknowledged the well known fact that California will have a $4 billion deficit in three years, yet he paradoxically took $1.6 billion away from the rainy day fund which could help smooth deficits, and instead unveiled an extra $10 billion in permanent spending. Included in that additional spending is $3.2 billion for the recent minimum wage hike, $3.1 billion for the Cap and Trade program, and $2.1 billion for an ‘optional’ expansion of Obamacare.

“As Governor Brown so eloquently said today when talking about whether or not the government should take California taxpayer’s hard earned money, ‘the money in somebody’s [read: taxpayers] hands is a good thing’. Strangely, the arithmetic in the Governor’s budget doesn’t add up to his propaganda.”

Analyzing the Governor’s Coming May Budget Revision

John Moorlach
By John MoorlachState Senator representing the 37th Senate District

Evaluating our state’s fiscal condition requires checking key vital signs to determine where our focus must be moving forward.

Here are 5 key metrics you need to know about the status of our state’s fiscal house as we anticipate the Governor’s May Revise:

1. California’s Net Financial Position

California has a $170 billion “net” financial position deficit, with an increase of $54 billion since last year, the largest net deficit of all 50 states. Read the updated California Annual Financial Report (CAFR) HERE.

NOTE: This balance sheet net asset account is derived by tallying the state government’s assets (monetary funds, investments, buildings, roadways, bridges, parks, etc.), less liabilities, and adjusted for investments in fixed assets and restricted funds.

2. Estimates of California’s Unfunded Pension Liabilities Accruing at 7.25+ Percent

CalPERS: $ 96.7 billion
CalSTRS: 72.7 billion
UC Pensions: 10.6 billion

NOTE: For the 2014/15 fiscal year, CalPERS planned for a 7.5% rate of return, but only managed a 2.4% rate of return. This year, some are hoping to have net earnings of zero. This means the unfunded liability for CalPERS as a whole grew $20 billion last year and will grow another $30 billion this year!

3. Current Unfunded Retiree Medical Liability

California has the nation’s highest unfunded retiree medical liability at $80.3 billion (this figure INCREASED by $6.3 billion since last year’s report).

4. California’s Unaddressed Transportation Infrastructure

The January budget analysis reflected that the Governor’s transportation plan would increase gas taxes on California drivers by $3 billion when California’s gas taxes are already the nation’s 5th highest. When cap and trade taxes are added, California has the nation’s highest taxes.

California spends 3 times the national average on maintenance per mile of roadway, yet California’s roads rate among the nation’s WORST in pavement condition and congestion.

34 percent of California’s roads are in poor condition, costing motorists $703 a year in additional fees.

Combining the proposed gas tax, $10 vehicle licensing fee, and $65 registration fee increases with the Governor’s other proposals will raise costs for a two-car family by at least $250 a year.

5. California’s Business & Economic Competitiveness

California has the highest income taxes and highest sales taxes.

California is the fifth most expensive state to raise a familyand was again rated the WORST state for business by CEOs—for the twelfth year in a row.

California has the highest corporate tax in the Western United States and the 14th highest property tax. According to the Tax Foundation’s 2015 Facts and Figures, that puts California fourth in overall tax burden on a per capita basis.

California recently flunked Moody’s recent fiscal ‘stress test’, which revealed our state is ill-prepared for the inevitable next recession.

Businesses and citizens continue to be one of the state’s largest exports.

SB 3, the Minimum Wage Mandate, will eliminate many lower income jobs in the state and will ultimately make our state’s payroll surge by $3.6 billion per year once it’s fully implemented.

Hundreds help honor community activists at Costa Mesa Mayor’s Celebration

Julia and George Argyros receive the Lifetime Achievement Award during Costa Mesa’s
fourth annual Mayor’s Celebration: The Art of Leadership dinner on Thursday at the
Samueli Theater at the Segerstrom Center for the Arts. Also pictured, from left, are
journalist Rick Reiff, Mayor Steve Mensinger, state Sen. John Moorlach and Arnel and
Affiliates Chief Executive Kevin Hauber. (Don Leach / Daily Pilot)

Reporter Luke Money — Contact Reporter

More than 200 people turned out Thursday night to recognize longtime educator and community activist Hank Panian and philanthropic powerhouses Julia and George Argyros during Costa Mesa’s fourth annual Mayor’s Celebration: The Art of Leadership dinner.

Hank Panian comments as he receives the Mayor’s Award during the Costa Mesa Mayor’s Celebration: Art of Leadership dinner Thursday night. Panian is a former Orange Coast College history professor, a founding member of the Costa Mesa Historical Society and former board member of the Mesa Water District. (Don Leach / Daily Pilot)

Panian received the Mayor’s Award for his decades of community service. The former Orange Coast College history professor was a founding member of the Costa Mesa Historical Society and served on the board of the Mesa Water District.

Costa Mesa Mayor Steve Mensinger called Panian "iconic" and "just a great person."

"If you don’t know the name right now, you probably haven’t been in Costa Mesa very long," he told the crowd of about 220 in the Samueli Theater at the Segerstrom Center for the Arts.

"He is one of those people that we all know in our lives that gives and gives and gives more than he takes," Mensinger added.

Panian said he was "absolutely overwhelmed" to receive the award.

"Community service is not a one-person job … it’s a culmination, collaboration, cooperation of hundreds of people," he said during the ceremony. "And if I were to mention all the names of those men and women who helped me along that way, we’d be here until midnight. I share this award with all those people."

The Argyroses — described during the ceremony as a "rare and extraordinary couple" and a "dynamic duo" — received a Lifetime Achievement Award for their community contributions.

George Argyros founded Arnel & Affiliates, a Costa Mesa-based real estate investment company, and served as U.S. ambassador to Spain.

He and his wife were applauded for their volunteerism, philanthropy and involvement in organizations including Chapman University, South Coast Repertory and the Segerstrom Center.

"George and I love Costa Mesa," Julia Argyros said. "I personally like to think of Costa Mesa as a very big city inside a little city."

Costa Mesa residents, she said, are some of the "most sincere, loving, hard-working people that you can imagine."

"Is it any wonder that we’re really thrilled to receive this award tonight?" she said. "Thank you so much."

Thursday’s event was presented by the Costa Mesa Chamber of Commerce, South Coast Metro Alliance, Segerstrom Center for the Arts and the city of Costa Mesa. It featured performances by students from Estancia and Costa Mesa high schools.

Proceeds from the $135-per-ticket dinner will benefit arts programs at the high schools, the Segerstrom Center and South Coast Repertory.

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