Happy St. Patrick’s Day!

St. Patricks Day

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Another update on the effort to repeal the gas tax

On Wednesday, Carl DeMaio provided another update on the effort to repeal the gas tax on the John and Ken Show on KFI Radio (the 10-minute segment starts at about 15:45):

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New CalSTRS data shows Orange County’s ‘$100,000 Pension Club’ grew 97% over past five years

CalSTRSThe number of retired Orange County educators collecting pensions of $100,000 or more from the California State Teachers Retirement System (CalSTRS) has nearly doubled since 2012, according to just-released pension payout data from TransparentCalifornia.com.

Last year, 1,989 CalSTRS members who retired from agencies in Orange County collected pensions of $100,000 or more — a 97 percent increase from 2012.

Remarkably, the three largest CalSTRS pensions statewide all went to Orange County retirees:

  1. William Habermehl, Orange County Office of Education: $369,831.
  2. Richard Bray, Tustin Unified School District: $326,882.
  3. Edward Hernandez, Rancho Santiago Community College District: $324,287.

Statewide, 13,527 CalSTRS retirees collected pensions of at least $100,000 last year, which marks an 87 percent increase from 2012, according to the data.

The chart below displays the Orange County school districts with the most $100,000 or greater CalSTRS pensions, as well as the percentage increase that has occurred since 2012:

School District

# of $100K+ CalSTRS Pensions

% Increase from 2012

Garden Grove Unified School District



Saddleback Valley Unified School District



Santa Ana Unified School District



Coast Community College District



Capistrano Unified School District



To view the entire CalSTRS dataset in a searchable and downloadable format, please click here.

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A March Madness bracket based on states’ financial rankings

Congratulations to Cal State Fullerton’s basketball team! The Titans are back in the popular NCAA Tournament for the first time since 2008. You can see the schedule here.

CSUF plays Friday: #2 Purdue vs. #15 Cal State Fullerton at Detroit, at 9:40 am Pacific

The graphic below and this message were just received from my friends at Truth in Accounting:

There’s not much time left to set your March Madness bracket! We based ours on our state financial rankings.

[Editor's note: You can see Truth in Accounting's state rankings here. California is #43.]


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Most Orange County city finances bleed red ink

Fullerton is #28 out of the county’s 34 cities

State Senator John MoorlachBy John Moorlach | Kudos to the Orange County cities of Cypress, Tustin, Irvine and Laguna Beach for enjoying the most sound balance sheets among Orange County’s 34 cities.

But cautions go out to Costa Mesa, Brea, Newport Beach and Anaheim for scoring the worst, and possibly entering a fiscal danger zone.

My rankings are based on what’s called a Comprehensive Annual Financial Report. There is no central repository for these. But you should be able to read these CAFRs, as they’re called, on the finance pages of your city’s website, or call the city for a hard copy.

In each CAFR, specifically look for the “Basic Financial Statements,” starting with the page titled “Statement of Net Position.” Usually it’s somewhere around pages 15 to 30. Look at the top row for “Government Activities.” Then look down the column to where it says, first “Net Position,” then “Unrestricted.” That’s the number you want: the Unrestricted Net Position, or UNP.

It will be a positive number, or, if there are parentheses around it, a negative number. Also notice if it says at the top “in thousands,” meaning you should add three more zeroes to the number.

The UNP number is the key because it is about purely governmental activities. It doesn’t include, for example, concessions from what are called “business-type activities,” such as operating vending machines at a library.

I divide the UNP by the city’s population to see where it falls within the range. This metric shows how much you, as a resident, are affected by city finances. If it’s a positive number, especially a high one, then all to the good. If it’s negative, then it’s time for you to get more involved with your elected council members.

Let’s look at an example on page 18 of the CAFR for Costa Mesa, for the fiscal year ending June 30, 2017. The UNP is a deficit of $161,805,274. If we divide that by the city’s population of 114,044, the per capita UNP equals ($1,419). This is the share for each resident (not household).

Just 19 of our 34 cities run positive per capita UNPs, while 25 cities run negative ones.

Such is the impact of unfunded actuarial accrued liabilities, or UAAAL, resulting from defined-benefit pension plans.

Here are the per capita UNPs for the top 10 cities:

1. Cypress: $1,805

2. Tustin: $1,754

3. Irvine: $1,624

4. Laguna Beach: $1,159

5. Laguna Niguel: $1,154

6. Lake Forest: $677

7. Dana Point: $668

8. Laguna Woods: $595

9. La Palma: $566

10. Aliso Viejo: $534

Now, if that per capita UNP is a negative number, then it’s a warning sign. And if it’s a high negative number, then your city is in critical fiscal condition.

Here are the 10 cities at the bottom of the list:

34. Costa Mesa: ($1,419)

33. Brea: ($1,312)

32. Newport Beach: ($1,269)

31. Anaheim: ($1,145)

30. Santa Ana: ($1,134)

29. Huntington Beach: ($1,128)

28. Fullerton: ($868) <<<<<<

27. Orange: ($738)

26. Fountain Valley: ($689)

 To read the rest of this commentary in the Orange County Register, please click here.

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2017 CalPERS pension data for Fullerton now online

CalPERS payouts approach $21 billion, up 43% over past 5 years

Today, TransparentCalifornia.com — California’s largest public pay database — released pension payout data for the California Public Employees’ Retirement System (CalPERS) for the fiscal year ending July 31, 2017. The data show total pension payouts of $20.63 billion — a 43% increase from the amount reported in 2012.

The number of Fullerton’s pension recipients increased from 696 in 2016 to 707 in 2017. Their pensions totaled $34,261,604.03 and the average pension for full-career retirees was $84,778.51.

Read the entire press release from Transparent California.com here.

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Loss of local control a big issue in new water tax fight

By Jon Coupal | Throughout his tenure as governor, Jerry Brown has consistently pursued new revenue for transportation, housing and water. The Legislature, whose default reaction to any problem is to raise taxes on middle-class Californians, has only been too happy to oblige. As a result, California drivers were hit last year with an annual $5 billion gas and car tax and property owners were burdened with a new tax on real estate recording documents to fund affordable housing. As if those tax hikes were not bad enough, now comes the third in a trifecta of tax insults: a new tax on water used by homes and businesses. That’s right, the Legislature is preparing to tax a public good that is essential to life, a precedent-setting tax that is unheard of anywhere else in the nation.

A weekly column by Jon CoupalSupporters of the bill will argue that the tax is needed because roughly one million people (mostly in the Central Valley) don’t have access to consistently clean drinking water. This is a legitimate problem due to decades of neglecting basic infrastructure, contamination of water supplies and the failure to make access to water delivery the priority it deserves.

But raising taxes is the wrong solution to this problem. It is unconscionable that California, which has a record-high $130 billion General Fund budget with a $6 billion surplus, can’t provide clean drinking water to a million people using existing resources. Is this not the first role of government, providing a public good essential to life? Moreover, why should taxpayers in Los Angeles, San Francisco and Sacramento have to pay higher water bills for a problem that is mostly limited to groundwater contamination in the Central Valley?

To read the entire column, please click here.

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Setting the record straight on CalPERS, SB 400 and our underfunded public employee pensions

By John Moorlach | As California continues to grapple with pension reform, it’s important to keep the record straight on how the state got into this mess. A major reason was the pension spiking of nearly 20 years ago, specifically Senate Bill 400 of 1999 by state Sen. Deborah Ortiz (D-Sacramento) which retroactively increased pensions 50 percent for California Highway Patrol officers.

[Editor's note: This morning, Fullerton City Manager Ken Domer is on a panel with Senator Moorlach in Newport Beach discussing the public pension crisis.]

That began a stampede of similar increases across California for other peace officers, firefighters and public employees in state and local governments. The argument often was made that the benefit had to be granted or local workers would shift to more generous neighboring governments that already had goosed their pensions.

State Senator John MoorlachIn 1999, the dot-com boom seemed to assure higher investment returns than in the past, meaning the higher payouts to retirees would not impact government budgets. Yet things did not compute that way, with state and local pension funds increasingly devouring budgets, forcing cuts in funding for schools, roads, health care and other public projects.

Despite that, Wayne Harris in the Sacramento Bee recently wrote an op-ed blaming the shortfall of pension funds on “Wall Street…not cops and firefighters,” saying alternative explanations show “California needs to invest more in mathematics instruction. When the Sacramento Bee editorial board  and city officials wag their fingers of blame at firefighters, teachers, police officers and state pension systems that have yielded 7 percent returns in the long run, it’s clear there’s a fundamental misunderstanding of the numbers.”

Retroactivity is a disaster when doing math calculations, Mr. Harris.

The Bee’s sensible editorial had detailed, “Loudly sounding the alarm, the League of California Cities reported this month that most members expect pension costs to jump by at least 50 percent by 2024-25. Pension payments – now about 11 percent of general fund budgets on average – will eat up about 16 percent by then.” Twenty years ago, that number averaged just 3 percent.

Harris is systems administrator for Woodland Joint Unified School District and a member of Californians for Retirement Security, an advocacy group for public employees and retirees. He continued, “In 1999, when Senate Bill 400 was passed with strong bipartisan support, CalPERS was 137 percent funded and the state was in the midst of an economic boom.”

True enough. And it’s lamentable that no Senate Republicans – long before I became a member – opposed the bill. But in the Assembly, seven Republicans voted Nay.

Also, for the record, CalPERS’ performance the past 20 years was not 7 percent, but just 6.58 percent. As Ed Ring of the California Policy Center calculated, “It doesn’t seem like very much, but the difference between a 7.0 percent rate of return and a 6.58 percent rate of return is actually quite significant.” The 0.42 percentage-point reduction “increases the required annual contribution as a percent of payroll from 23.0 percent to 25.8 percent – and as a fully funded plan becomes unfunded … the ‘catch up’ contributions start to pile up.”

Missing years

In his op-ed, Harris then skips to the 2008-10 Great Recession.

But hold on, something else happened first.

Here are CalPERS’ investment returns for those earlier years:

  • 1997: +20.10%;
  • 1998: +19.5%;
  • 1999: +12.5%;
  • 2000: +10.5%.

That looks great. Silicon Valley and other high-tech centers in California were roaring in the dot-com boom.

Then in 2000, the dot-com bust struck and, over the next two years, the NASDAQ lost 78 percent of its value. Hundreds of tech companies went bankrupt. Even Cisco Systems Inc., a company that survived and is worth more than $200 billion today, dropped 86 percent back then.

The bust tanked CalPERS’ investments:

  • 2001: -7.20%;
  • 2002: -6.10%;
  • 2003: +3.70%.

As early as August 2003, five years before the Great Recession struck, as the market started to recover from the dot-com bust, the Sacramento Bee reported on SB 400’s early returns in its first four years: “The measure approved that day [in 1999] will cost taxpayers at least $10 billion over 20 years, plus uncounted billions for similar increases granted later at the local level. The legislation began a wave of public employee pension increases at a time when private sector employees were seeing their own retirement benefits shrink or disappear entirely. And the bill relied on a fundamentally flawed assumption – that state employees, not the taxpayers, were entitled to the fruits of the long running boom in the stock market.”

It added that SB 400 was the “brainchild” of CalPERS itself. And, “The details were negotiated behind closed doors by representatives of Gov. Gray Davis and the state employee labor unions.”

So much for open government and following the democratic wishes of Californians.

And – remember this is 2003 – “Now lawmakers and pension officials acknowledge that the benefits are costing taxpayers at least $500 million a year, part of $2.2 billion in new pension costs that have added to the state’s huge budget deficit. But that price tag will surely climb even further because of follow up legislation that has given other employees pension boosts to match those granted in 1999.”

Over the next few years the economy recovered, or seemed to, in the boom of the mid-2000s, when sub-prime mortgages were driving ridiculous increases in housing prices. Here are CalPERS’ returns:

  • 2004: +16.60%;
  • 2005: +12.30%;
  • 2006: +11.80%;
  • 2007: +19.10%.

Wall Street and CalPERS

Getting back to Harris, he continued in his piece, “Then, due to the fraud and abuse by Wall Street bankers, the worst recession since the Great Depression hit and investors across the globe watched as trillions of dollars in asset values were wiped out. CalPERS lost $69 billion in the first year; over the next two years, its funded status dropped by 40 percent.

“If it weren’t for the Great Recession, SB 400 benefits would have been funded for 138 years. That’s why it is unfair to criticize hard-working public employees and their pensions, while union critics give Wall Street a free pass.”

I’ll include CalPERS’ performance for those years:

  • 2008: -5.10%;
  • 2009: -24.00%.

That last, of course, was the killer.

But, it didn’t have to be so. If the CalPERS Chief Investment Officer would have reduced the holdings in equities before the dot-com bust, and repositioned into 8 percent paying bonds, then Harris may have a point. And if the CIO didn’t buy highly leveraged real estate, prior to the subprime meltdown, then maybe those losses would have been lower.

As Pensions & Investments reported on Dec. 28, 2009, “Behind CalPERS’ staggering real estate losses lies a strategy that took on too much risk and lacked adequate oversight. Once the fund’s star asset class, the real estate portfolio of the $201.1 billion California Public Employees’ Retirement System lost nearly half its value during the one-year period ended Sept. 30…. At the heart of the problem is a freewheeling approach that took on massive leverage, gave enormous discretion to staff and experienced poor timing with its investments.”

But, it’s easier to blame Wall Street when one is asleep at the investment wheel.

I immediately need to point out that other pension reformers and I are not blaming the employees, nor giving Wall Street a pass. I’m only pointing out that the history of what happened is essential to finding solutions now – and avoiding future disaster.

I’ve been a CPA and certified financial planner for more than three decades. And I’ve been a public official emphasizing prudent use of the public purse since I became Orange County’s treasurer-tax collector in 1995, after the county’s 1994 bankruptcy, which I had warned might happen.

Although recessions, including the Great Recession, are not predictable precisely, what is predictable is that eventually the business cycle goes down as well as up. There will be rough patches that need to be guarded against as much as possible through prudent financial management, especially when the public’s tax dollars are at stake.

As Harris noted, in 1999 CalPERS was 137 percent funded. But that was the very height of the market, something that should not have been expected to continue – and before the pension spiking. Indeed, as the market was zooming upward, none other than Federal Reserve Board Chairman Alan Greenspan on Dec. 5, 1996 warned of “irrational exuberance” which has “unduly escalated asset values.”

Harris solely blamed “the fraud and abuse by Wall Street bankers” as the reason for the Great Recession. Certainly, there was chicanery there. Although, President Obama never prosecuted any of the bankers, even though he was elected in part because the president at the time of the crash was Republican George W. Bush.

But a large recession commonly doesn’t have just one cause. And economists spend a great deal of time debating the causes, including in this case. Other reasons for the 2008-10 debacle have included:

  • Government interference in the market;
  • The 1999 repeal of the Glass-Steagall banking regulation;
  • Fannie Mae and Freddie Mac providing too many cheap loans;
  • The Federal Reserve Board printing too much money;
  • The Fed not printing enough money;
  • The Iraq and Afghanistan wars costing as much as $7 trillion;
  • President Bush and the Republican Congresses of 2003-06 increasing domestic spending faster than any time since Lyndon Johnson’s Great Society in the 1960s;
  • Turning the balanced budgets of 1998-01 into record deficits, including those $413 billion in 2004 and $459 billion in 2008.

But, let’s get back to math lessons. If you increase the benefits of a fully-funded, defined-benefit pension plan 50 percent, retroactively, then the plan becomes two-thirds funded. And for that, we have public-employee unions to thank for an immediate and massive UAAL – unfunded actuarial accrued liability!

More pension reform needed

Some people have learned the lesson. Take Gray Davis. According to FollowtheMoney.org, he received $5 million in campaign donations from public-employee unions for his 1998 election. But in 2016, he conceded in an interview in the Los Angeles Times, “If you’re asking me, with everything I’ve learned in the last 17 years, would I have signed SB 400? . . . no, I would not have signed it.”

And none other than Gov. Jerry Brown, a longtime ally of public-employee unions, has called for more pension reform. He even is challenging the so-called California Rule, under which public-employee pensions supposedly never can be cut after being made in a collective bargaining agreement.

Brown argued last November in a lawsuit brief defending his limited 2012 pension reform, “For years, self-interested parties, overly generous promises whose true costs were often shrouded by flawed actuarial analyses, and failures of public leadership had caused unsustainable public pension liabilities.”

So even the governor blames the problem, not on one of the periodic recessions that hit us, but on mistakes by pension experts and public officials.

That means it’s up to today’s public officials to fix these problems. Now that we have the appropriate components of the equation, all the parties should take the remedial mathematics instruction one self-interested beneficiary of the pension recommends. And if pensions are not fixed, the public employees themselves will be most hurt from the mistakes of the late 1990s.

State Senator John Moorlach represents California’s 37th District in Orange County. He previously served as an Orange County Supervisor, and prior to that as County Treasurer. This post originally appeared on the Fox & Hounds political website.

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Fullerton City Hall is closed today for another three-day weekend

City Hall Closure Dates and
Observed Holidays

January –1*, 12, 26
February – 9, 19*, 23
March9, 23
April – 6, 20
May – 4, 18, 28*
June – 1, 15, 29
July – 4*, 13, 27
August – 10, 24
September – 3*, 7, 21
October – 5, 19
November – 2, 11*, 16, 22*, 23*,30
December – 14, 24*, 25*, 26^,27^, 28, 31*

*Holiday observed
^Winter Closure

Fullerton City Hall

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Fullerton’s city manager to discuss the public employee pension crisis tomorrow in Newport Beach

Fullerton City Manager Ken Domer will be participating tomorrow in a forum on California’s public employee pension crisis sponsored by the Association of California Cities-Orange County. The event will be held in Newport Beach.

Ken DomerIn addition to Domer, the discussion will include state Sen. John Moorlach (R-Costa Mesa), Newport Beach City Councilwoman Diane Dixon, Huntington Beach City Councilwoman Lyn Semeta, Huntington Beach Assistant City Manager Lori Ann Farrell and Kerry Worgan, chief actuary of the California Public Employees’ Retirement System (CalPERS).

The forum will run from 8:00 am to noon at the Newport Coast Community Center, 6401 San Joaquin Hills Road. Tickets are $25 for association members and $45 for nonmembers. [Source: Daily Pilot]

Posted in John Moorlach, Ken Domer, Pensions | 1 Comment