State Senator John Moorlach (R-Costa Mesa) knows a lot about municipal budgeting. While campaigning for Orange County Tax Collector-Treasurer in 1994, he accurately predicted the largest municipal bond loss and bankruptcy in history. Moorlach recently wrote in the Bond Buyer: “Put California Pensions on a Ventilator”, alluding to the use of mechanical ventilators to assist patients with life-threatening coronavirus to breathe.
Moorlach describes the current situation created by Gov. Newsom’s economic shutdown policies in response to the coronavirus outbreak:
“The coronavirus has massively impacted the necessary revenues our cities are relying on to meet their already stretched budgets. Anaheim is losing some $500,000 per day as their hotels and Disneyland are closed. Costa Mesa is likely to be losing massive sums in sales tax revenues as South Coast Plaza sits empty and car sales have dissipated.”
Moorlach is skeptical that budget reductions, issuing pension bonds that double the true pension costs to taxpayers, huge spikes in sales taxes, increased commercial property taxes by a split-roll property tax or more ballot initiatives will prevent eventual Chapter 9 municipal bankruptcies.
But Moorlach says the current self-created state and local government budget crisis only worsens the underfunded public pension system that goes back to 1999 when California government pensions were increased by 50 percent:
“In 1999, most government pension plans were 100% funded. With a 50% increase in liabilities, they instantly became two-thirds funded. And, for the last 20 years they are still two-thirds funded!”
State Pension System is a “Scam” – Moorlach
Moorlach believes that the state pension system is a Ponzi-like “scam” as it is currently structured and points to the state of Wisconsin, which has a 100 percent pension system, as a model.
A double check of Moorlach’s forecast of pension system and municipal bankruptcies by this writer indicates that Moorlach is right. Cal-PERS’ huge investment fund has only kept up with money inflation in the 20 years since SB 400 was signed by then Governor Gray Davis.
The online US Bureau of Labor Statistics Inflation Calculator indicates that a dollar has inflated to $1.57 (by 57 percent) over that same time period. Pension benefits went up by 50 percent but pension fund levels have only gone up 7 percent after adjusting for inflation. There has been little-to-no investment magic gained by Cal-PERS to grow state and local pension funding beyond the actual contributions by taxpayers.
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