Is Moorlach right this time too?
State Sen. John Moorlach is ringing a warning bell regarding California’s financial health.
This is the same guy who predicted the Orange County bankruptcy in 1994. At the time, no one was really taking him seriously, and we all know how that turned out.
Fast forward to today. Should we again be listening to this Costa Mesa Republican?
Californians pay the highest rate of personal income tax in the country, yet according to a March 1 article in the San Francisco Chronicle, “More than 1 in 5 Californians live in poverty, the highest rate in the country when you factor in the higher cost of housing and living in the state.”
Reading Moorlach’s email updates, he’s concerned on several fronts. Prison costs and unfunded pension liabilities are among the factors contributing to California’s fiscal house of cards.
So I called him last week to chat about his concerns in Sacramento, and to discuss legislation he’s planning to bring forward.
Crime is one topic he’s hot to talk about after attending a recent budget and fiscal review hearing. At the meeting, reasons for the increase in costs for our prison system were discussed, even though populations have decreased. And Assembly Bill 109 and Propositions 47 and 57 — a bill and two voter-approved referendums, respectively, that allowed early release of inmates — were also touched on.
“I took on the Department of Finance at the beginning of the three hour-plus hearing,” Moorlach says, noting that “$1.155 billion of the $2.141 billion in increased costs were due to normal increases in wages and pension contributions.”
He says each inmate costs California $70,000 a year, a cost that can be reduced to as low as $29,500 by outsourcing the prison population.
“If they were serious about reducing costs, the answer was sitting right there,” he says.
The Senate recently voted to approve three bills related to the Memorandums of Understanding (MOU) between the governor and nearly two-thirds of the state’s employees, through their respective bargaining units. Senate Bills 28, 47 and 48 will cost $2.7 billion.
Moorlach voted against all three.
And one wonders how the state doesn’t have enough money to fix roads and dams, but does for paying employees higher benefits?
Moorlach says cities should have more control over their pension funds and wants to propose a plan in which they can exit the California Public Employees’ Retirement System (CalPERS) without a huge payout.
Leaving CalPERS is expensive for cities. CalPERS computes a city’s pension liability at a 2% to 3% investment-return formula, then the city gets a massive bill that must be paid immediately because the pension system was making contributions based on a 7.5% assumption, Moorlach says.
He’s proposing to change that calculation formula.
He’s working on a bill that would calculate what a city paid into CalPERS over the years, what it made in investment income and what it paid in retiree benefits. The sum would be paid in full to the respective city to start its own retirement trust fund that meets federal codes, making it responsible for their own pension liability destiny.
Moorlach also explained the day an employee starts with a city they get benefits that cannot be legally reduced.
He wants to introduce a bill that can tier the benefits so they can be changed prospectively.
“We need to give tools to these cities,” he says.
Moorlach says residents are starting to realize “unfunded pension liabilities are going to run us over.”
Yet in his home town, he says, “it’s a crazy move in Costa Mesa to lower pension input.”
What he’s referring to is a newly approved contract that decreases the amount city employees pay toward their pensions from 17.04% to 12% by year three. The proposed contract is expected to cost taxpayers $5.65 million more over the life of the agreement than the previous one.
Moorlach will most certainly continue to ring this financial warning bell. Let’s see if anyone will listen.
BARBARA VENEZIA lives in Newport Beach. She can be reached at bvontv1@gmail.com.