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California must act quickly to address the financial crisis

California must act quickly to address the financial crisis

The stock market dropped 33 percent in the past three weeks. This tremendous financial upheaval demands that California lawmakers take quick action to secure the state’s finances.

Consider that California’s yearly tax revenues are extremely unbalanced. They rely too heavily on the 1 percent of the state’s population that generates half of its personal income taxes, thanks mostly to capital gains. Well, those gains have now vanished.

At the same time, California’s public employee pension funds were heavily invested in the stock market. And, even without the 33 percent drop in value, the unfunded pension liabilities of these funds totaled in the hundreds of billions of dollars.

Add to that the tremendous underlying pension debts of California’s local governments, and we’re ripe for a fiscal disaster.

Last year, my staff produced Financial Soundness Rankings analyses of the state as well as county and city governments and school districts. The results were staggering.  All told, before the stock market crash of the past few weeks, California was already nearly half a trillion dollar in the red.

Add to this the expected massive costs of mitigating the coronavirus outbreak, including the expansion of health facilities, lost tax revenues from shuttered businesses, increased unemployment and public assistance, expanded government emergency operations, housing the homeless and other likely expenses.

As the only California legislator trained as a CPA, I can tell you that if we don’t act quickly, California could experience a once-in-a-lifetime cash crunch that cripples the state budget for years to come and negatively impacts the pension systems for millions of its retirees.

Here are a few of my recommendations:

1. Build additional cash reserves by quickly reviewing all current state expenditures, finding areas of spending that can be either eliminated or postponed to a future date.

2. Offer only 401(k) plans to new hires.

3. Work back budget additions of recent years before requiring across-the-board spending cuts, but sparing healthcare.

4. Prepare state and local employees for potential layoffs.

5. Consider wage freezes or reductions.

6. Eliminate “last-in-first-out” protocols when implementing layoffs.

We’ve seen financial meltdowns like this before. Twenty-five years ago, Orange County’s improperly invested cash balances imploded. The county filed for bankruptcy protection, becoming the largest municipal bankruptcy in U.S. history, a record that held for 17 years.

At the time, as a private-sector CPA I warned elected officials about the coming crisis. In the aftermath, I was appointed to be treasurer-tax collector to reform the county’s finances and help bring it out of bankruptcy, which we did 18 months later without a tax increase.

Later, during the Great Recession, I was an Orange County supervisor. I know how difficult this is, laying off some 1,000 county employees. It was painful.

Finally, the last thing the state needs is higher taxes and more bonds. Voters already spoke in the March 3 election, thankfully defeating many school bonds statewide that normally would have passed. The biggest flop was Proposition 13, the $ 15 billion statewide school bond, which lost 54 percent to 46 percent. Local bonds lost as well. Voters knew there was enough debt and taxes.

It’s time to downsize — reduce spending, eliminate debts and reduce tax rates to increase taxable activity. Let’s move now, making plans and preparing for the coming fiscal tidal wave. Californians will be much better for it. They have communicated their resolve through their recent votes.

John M.W. Moorlach, R-Costa Mesa, represents the 37th District in the California Senate.


Press Enterprise