Will the coronavirus pandemic lead to tax increases?

By Jon Coupal | In January, Gov. Gavin Newsom presented a proposed budget for fiscal year 2020-2021 which envisioned a several billion dollar increase in spending for existing programs as well as a host of new programs. But that was before COVID-19 arrived at our shores.

In over the course of just three weeks in March, it became obvious that the original budget plan would have to be scrapped because of the most rapid economic downturn America has ever seen.

So it was with great interest that all those who follow California politics were watching last Thursday as Newsom released the “May RevisionRevise” of the budget. To no one’s surprise, the huge dive in state revenues forced the governor to slash $19 billion from January’s initial plan.

According to the governor’s Department of Finance, the budget deficit is $54 billion. But this figure may be overstated in order to present to the public the worst possible case. The non-partisan Legislative Analyst projected the deficit to be as low as $18 billion with a worst case scenario of $31 billion.

The question is whether the budget shortfall will lead to a demand for tax increases. Taxpayers can also take some comfort that there are no immediate plans for broad-based tax increases. The governor proposed two tax hikes, a suspension of a business deduction for what are known as “net operating losses” and a tax on vaping products.

To read the entire column, please click here.

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Cities need reform, not bailouts

[Editor’s note: This op-ed appeared in the May 10 issue of the Orange County Register.]

By Jim Righeimer and Bruce Whitaker | The inevitable has happened, restoring our faith in the logic of the universe: the local politicians who supported Gov. Newsom’s shutdown of the California economy now want the governor and the Trump administration to bail them out.

But don’t be fooled. Even if you think killing the economy has been necessary, the coming collapse of government finances has less to do with the virus or the economic shutdown than with crazy government spending that goes back years, even decades. The catastrophe for cities wasn’t created in the past few weeks.

Oh, they’ll tell you it’s all about the virus. Indeed, that’s what the mayors of two Orange County cities recently proclaimed in these very pages. Under the grim-but-hopeful headline “Ensuring the survival of SoCal cities after this pandemic,” mayors Jennifer Fitzgerald of Fullerton and Katrina Foley of Costa Mesa asserted, “The COVID-19 crisis is crushing already cash-strapped California cities.”

The key word is “already.” With a few brief periods of reform, government unions supported the political campaigns of candidates like Fitzgerald and Foley. Once elected, these officials signed off on every new pay and benefits hike proposed by the union leaders who helped them into public office.

We could pick at the facts in their essay — we could point out that the 54 employees Foley claims she’ll have to lay off are mostly part-time recreational staff.

But these are quibbles. Our key point is that, in the years leading up to economic lockdown, these and other California officials have rubber-stamped pay hikes and pension benefits that their supporters, the public employee unions, demanded of them. Their government finances were unaffordable long before this disaster. The shutdown has only sped up the process of insolvency.

Consider the shameful example of Fullerton’s streets. These potholed relics would embarrass any American city. Such blight is incomprehensible in high-tax, relatively high-income Orange County — incomprehensible unless you understand that its union-backed political class consistently approves higher pay and benefits for government workers that suck up every available dollar, crowding out essential services.

The solution? If you’re Foley and Fitzgerald, first blame the virus for your predicament. Second, find someone to bail you out of your self-inflicted problems.

Foley, Fitzgerald and most California politicians — from H Street in Sacramento to Main Street in almost every town — want the state to make their payments to employee retirement systems they themselves failed to fund. They want Gov. Newsom to give them money that the governor is hoping he’ll get from the Trump administration. And they want state and federal funding for local “workforce development” programs — because they themselves helped destroy jobs.

If Foley and Fitzgerald are truly concerned about the prospect of insolvency, there’s a legitimate solution: Chapter 9 bankruptcy.

Unlike California state judges, federal bankruptcy judges have shown a remarkable willingness to unwind the disastrous pensions that created havoc in city finances long before this current crisis.

That, of course, would require Foley and Fitzgerald to turn on the union leaders who financed their political campaigns in the expectation of a payback. Doing so requires courage.

Let’s see if these officials have the heart to match their bold claim that they’re ready to fight for their communities.

Jim Righeimer was elected to the Costa Mesa City council twice and served from 2010 to 2018.  He was mayor from 2012 to 2014. Bruce Whitaker was first elected to the Fullerton City Council in 2010 and has since been reelected twice. He was mayor in 2013 and 2017.

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Standing for taxpayers and direct democracy

By Jon Coupal and Timothy Bittle | The powers of direct democracy — initiative, referendum and recall — have been powerful tools to control slow-moving or corrupt politicians.

These powers are enshrined in the California constitution for reasons that are just as compelling in 2020 as they were in 1911 when Gov. Hiram Johnson, seeking to counterbalance the influence the railroads had over the state Capitol, pushed to give ordinary citizens equal footing with legislative bodies to enact or reject legislative proposals.

Direct democracy has, for more than 100 years, been used most frequently on matters of taxation and government spending.

Indeed the most iconic example of direct democracy in the Golden State is Proposition 13, approved by the voters in 1978.

It is no wonder then that taxpayer advocates have been the staunchest defenders of direct democracy.

That tradition carries on to this very day.

Last Tuesday, the California Supreme Court heard argument in a case that threatens one of these powers of direct democracy — the referendum power.

To read the entire column, please click here.

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Of nuclear-powered airplanes and the bullet train

By Jon Coupal | A long-forgotten aspect of the nuclear arms race was the costly undertaking by the United States to develop a nuclear-powered aircraft as a strategic bomber.

Even before Allied powers defeated Nazi Germany in 1945, both the United States and the Soviet Union were battling for post-war superiority. With the successful detonation of two atomic bombs — bringing the Pacific Theater hostilities to an abrupt halt — the U.S. had a brief period of nuclear superiority over the USSR.

That would not last long as the USSR quickly accelerated its nuclear program and the Cold War was on.

In May 1946, the United States Army Air Forces started the Nuclear Energy for the Propulsion of Aircraft (NEPA) project. The alluring idea was to build an aircraft that could, in theory, stay aloft indefinitely. In 1951, the NEPA project was succeeded by the Aircraft Nuclear Propulsion (ANP) program.

However, despite the efforts of America’s best nuclear and aviation scientists working with a virtually unlimited budget, the problems were insurmountable. The biggest hurdle was that nuclear reactors are very heavy. Sustaining one aloft with a fixed-wing aircraft turned out to be a challenge that could only be overcome by using a modified B-26 as a platform.

To read the entire column, please click here.

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Put California’s public employee pensions on a ventilator

By John M. W. Moorlach | As California and America look forward to relaxing restrictions, it’s time to look ahead to meeting the onrushing financial crisis.

The coronavirus has created such a massive disruption to the world’s stock markets that almost all California public employee defined-benefit pension plans will never recover. At a minimum, they must be put on a fiscal ventilator.

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.

How can municipalities survive when revenues are dramatically reduced, even for a brief period, and annual required pension-plan contributions continue to increase? How many layoffs can they make? This vise grip will be painful.

Since their inception, traditional defined-benefit pension plans have been difficult to fund. They are delicate and expensive. Consequently, in the private sector they are now rare. And those that are still in existence in the private sector use reasonable assumptions.

While major economic downturns have effectively shaken most of the defined-benefit plans out of the private sector, such plans persist in the public sector. Why? They are financial scams by predatory public-employee union leaders. And, why not? If they are underfunded, beg elected officials to raise taxes.

As Orange County’s treasurer-tax collector for 12 years, I served on the board of the Orange County Employees Retirement System, one of the largest in the nation. I know that, when managed properly, defined benefit pensions can be a useful retirement tool. Managed improperly, they can be financial sink holes. Regretfully, that is what they have become.

The writing is on the proverbial wall. For the last two decades, post-SB 400, experts have been claiming that traditional public employee defined-benefit pension plans are no longer sustainable. They were right.

It is now time to think outside the box. Forget the gimmicky solutions, such as pension obligation bonds. They only validate a flawed system.

There are a few essential issues every pension board should consider when dealing with these plans:

You don’t set a high annual investment return target as one of your assumptions. Assuming that the plan is going to earn 8% every year into perpetuity is insane. The current 7% assumption of the California Public Employees Retirement System (CalPERS) is still too high, making it reckless. [EDITOR’S NOTE: CalPERS just reported a return of -0.4% for the year ended March 31.]

You don’t change the retirement formulas in the middle of the game. In 1999, Gov. Gray Davis signed Senate Bill 400, by then-state Sen. Deborah Ortiz. It increased benefits by 50 percent for certain state employees. Gov. Davis now regrets having signed this bill, as he should.

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!

You don’t grant formula increases and make them effective back to the date of hire. Granting retroactive increases is a disaster.

In 2012, Gov. Jerry Brown passed a reform called the Public Employee Pension Reform Act of (PEPRA). It prohibited these massive transfers of wealth from the private sector to the public sector.

You can’t allow public employee unions to fund the campaigns of candidates that vote on their bargaining unit agreements or sit on the judicial bench. These conflicts of interests have exacerbated California’s pension mess. Unfortunately, judicial opinions forbidding modifications to fix math equations imply that defined benefit plans have become scams.

It’s time for a reboot.

Surveying this nation’s 50 state pension plans, Wisconsin continues to stand out as being fully funded at 100%. They shed a traditional defined benefit pension plan years ago and have been using a “shared-risk” pension plan since 1982. This is a modelother states, like California, should be reviewing.

A shared-risk pension plan means public employees will have to be more involved with higher plan contributions if market returns do not meet anticipated levels, as we’re experiencing now. Retirees will have to be realistic about their retirement ages and forgo cost-of-living adjustments. On the other side, they should also benefit from periods when the market delivers better than anticipated returns. And employers will have to use more realistic return assumptions, such 3% or 4%.

California and its counties, cities and school districts must face the realities of market fluctuations and replace their traditional plans with shared-risk plans.

This will not happen through the California Legislature. The majority Democratic Party is too beholden to the public-employee unions, which want to keep the status quo. But keeping the status quo will lead to massive debt obligations by taxpayers to whom? To their employees. How does that make sense?

A ballot measure may do the trick, but is unlikely to be successful. Skewed ballot titles are written by Attorney General Xavier Becerra – because he is also beholden to the public employee unions, making a travesty of the proposition process.

What to do? Many cities and counties can, and probably will, file for Chapter 9 bankruptcy protection to reorganize their debts in a federal courtroom. Federal judges can review and even ignore state and local bargaining unit contracts and reshape or replace them. So if a municipality files for Chapter 9, it should consider at least the following three components for the plan of adjustment:

  1. Terminate the traditional defined-benefit pension plan and initiate a shared-risk pension plan with the former plan’s investment assets going forward in the new plan.
  2. Eliminate or dramatically modify the retiree medical plans and other post-employment benefits (OPEBs), similar to the city of Stockton’s strategy in its 2012 bankruptcy.
  3. Make significant improvements to unused vacation and sick time accrued-leave plans that have not already been substantially modified.

I lived through the 1994 Orange County Chapter 9 bankruptcy and see shared risk pension plans as the only and best approach to get California’s counties and cities back to being financially sustainable.

The house of cards is falling. The system must change. But public employees should have a retirement plan that is there when they need it. A federal judge can provide a sustainable shared-risk pension plan in a controlled setting through a professional and expedient process. The sooner cities and counties start, the better.

Let’s get them off fiscal ventilators and have them moving forward with much healthier benefit plans that are not only fair and reasonable for their employees, but also for their employers, the taxpayers.

John M. W. Moorlach (R-Costa Mesa) represents the 37th District in the California Senate. This article originally appeared in The Bond Buyer on April 20, 2020.

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The dark side of stimulus

By Jon Coupal | The COVID-19 pandemic has turned the world upside down with massive disruptions in virtually every aspect of human life. With some notable exceptions, humanity has pulled together to vanquish this silent killer. It’s amazing how quickly both the private sector and public health experts have moved to confront this serious threat. For this, we can all be thankful.

But politics is politics and the controversies over government’s response to the crisis are legion and will continue long after the virus disappears. At the international level, China must be held accountable to the rest of the world for both its actions and omissions that led to the spread of the virus.

In the United States, debates swell over whether our response was too slow. Many of the same critics of President Trump’s handling of the crisis by underestimating the severity of the pandemic are the same people who criticized his barring of international flights into the country. In hindsight, both the administration as well as America’s health-care experts failed to respond in a timely manner.

When our political leaders reacted, they did so with a sledge hammer, essentially shutting down the economy with strict shelter-in-place orders. Whether this was an overreaction will only become clear in the future when we know more about this particular virus, but the government-imposed shutdown was based on the best information we had at the time.

Nonetheless, the nationwide shutdown has come with its own huge negative impacts on the economy and employment. And because it was government that ordered society and the economy to come to a screeching halt, it had the obligation to make individuals, businesses and institutions whole — or as close to whole as possible.

To read the entire column, please click here.

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Prop. 13 opponents turn in their signatures

By Jon Coupal | With great fanfare, the proponents of an initiative to raise property taxes in California by $12 billion a year announced they had turned in over 1.7 million signatures to qualify the measure.

Their press release was headlined “Schools and Communities First make history with most ever signatures submitted.”

It’s a wonder they didn’t break their arms trying to pat themselves on the back.

For those who have forgotten, the measure, entitled the California Schools and Local Communities Funding Act of 2020, would remove one of Proposition 13’s most important protections – the limitation on annual increases in taxable value – from business and commercial properties. The increased tax burden would be passed along to consumers and taxpayers who are already struggling with California’s high cost of living.

Multiple efforts to “split” the property tax roll have failed over the last 40 years. Most never made it to the ballot and the one that did, voters rejected. Prop. 13’s continued popularity remains remarkably strong to this day as evidenced by a recent Public Policy Institute of California poll showing that a strong majority of Californians believe that the initiative is “mostly a good thing.”

To read the entire column, please click here.

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Little coronavirus relief for property owners

By Jon Coupal | The second installment of the 2019-2020 property tax bill was due on Friday and we hope the majority of California’s property owners were able to pay it without economic hardship. Unfortunately, for many homeowners and small businesses, it was more than just a hardship. They simply didn’t have the cash, and now they’re considered delinquent.

For this regrettable state of affairs we can thank both state and local officials. Gov. Gavin Newsom had the authority to issue an executive order to delay the deadline or direct counties to waive penalties and interest but, after pressure from local government associations, he declined to do so.

The California Association of County Treasurers and Tax Collectors admits that its members have the discretion to waive penalties and interest for late payment of property taxes. But whether they will do so will be determined only on a “case-by-case” basis.

In Orange County, Tax Collector Shari L. Freidenrich told the Los Angeles Times, “We will be closely reviewing each request on a case-by-case basis that we receive from homeowners, small businesses and other property owners who have significant demonstrated economic hardship due to COVID-19.”

To read the entire column, please click here.

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Pension bomb fuse just got shorter

By Jon Coupal | Homeowners have enough to worry about in the current coronavirus crisis.

They face an April 10 deadline for the second installment of their annual property tax bill and there is no relief — yet — coming from either the governor’s office or the majority of county treasurer/tax collectors.

Many taxpayers have been furloughed or laid off and the chances are high that property values throughout America will take a hit — even in California.

How could things possibly get worse?

Here’s how. The coronavirus crisis and the damage it inflicts on the state’s economy has exposed the Potemkin village of the state’s actual financial condition.

For the last several years, we’ve been told that the “California Miracle” has left the state flush with a surplus of tens of billions of dollars. But that surplus will be quickly depleted because of the unexpected demands that the crisis brings.

Even more troubling is the impact on California’s debt balance, which is a mountain compared to the molehill of surplus revenue. And the bulk of that debt is in the form of unfunded pension obligations.

To read the entire column, please click here.

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Atlas is shrugging

By Stephen Moore

“Government help to business is just as disastrous as government persecution. … The only way a government can be of service to national prosperity is by keeping its hands off.” — Ayn Rand

Congress has just approved an economically bloated $2.2 trillion spending relief bill, an amount more substantial than the GDP of all but a handful of countries. It is only the third massive relief bill, and we’ve been told several trillion dollars more would have to get spent. Then there are the trillions of dollars more of Federal Reserve Board liquidity injections. We are starting to talk about real money here.

The politicians believe that sending $1,200 checks to people will “stimulate” the economy. Among the many mistaken provisions of this new law is a welfare benefit to workers that pays them more money if they quit and become unemployed than if they stay on the job.

Here we go again. A decade ago, during the height of the folly of the bank bailouts and trillions of dollars of spending for “shovel-ready projects” (that didn’t create jobs but plunged our nation into greater indebtedness), I noted in a Wall Street Journal article that with each successive bailout and multibillion-dollar economic stimulus scheme from Washington, the politicians were reenacting the very acts of economic stupidity that Ayn Rand parodied in her 1,000-page-plus 1957 novel Atlas Shrugged. In many surveys, Atlas rates as the second most influential book of all time behind the Bible.

For those of you who have not read it (first, shame on you!), the moral of the story is that politicians invariably respond to crises — that, in most cases, they created — by spewing out new, mindless government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to spawn even more programs. At which point, the downward spiral repeats itself until there is a thorough societal collapse. Isn’t this precisely what is happening now?

In the book, the well-meaning politicians pass bills such as the “Anti-Greed Act” to prevent companies and wealthy people from making too much money. Another of my favorites was the “Equalization of Opportunity Act,” which required successful people who invented things and started new businesses to share their wealth. Now, in real life, Sens. Elizabeth Warren and Bernie Sanders propose legislation like this all the time. They rant daily against “greedy” millionaires and billionaires (though Sanders dropped “millionaires” the moment he became one) and wonder whether the wealth producers of our economy deserve to exist at all. And these two were competitive in the Democratic presidential nomination.

We are living through the Ayn Rand dystopia right now. We have given police-state powers to the government to shut down “nonessential businesses” and tell people whether they can play golf or go for a hike. Some of these measures may make sense based on public health, but at what point are we degrading the rights of individuals to choose risks for themselves?

At one point in Atlas Shrugged, the incompetent rent-seeking politicians finally have to admit that they have brought the economy to its knees with all the do-goodism. Out of desperation, they ask the heroic business owners in society what they must do. “First, abolish the income tax,” they are told.

Sound like a wild-eyed idea today? Guess what? For the $2 trillion-plus that Congress has just spent to protect the economy, we could have completely eliminated the personal income tax on every worker and business this year. Isn’t it abundantly evident which would have been the smarter choice to revitalize our economy?

I can just hear Warren shriek: “This would benefit ‘the rich!'” But, of course, the people who are suffering most from the lockdown on the economy and other power grabs by the government today are the lowest-income workers.

In Atlas Shrugged, everyone gets poor, and if we stay on our current turn toward statism and don’t stand up for our rights, we will be poorer and a lot less free.

Stephen Moore is a senior fellow at the Heritage Foundation and an economic consultant with FreedomWorks.

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