Recently, at an event organized by The Epoch Times, I jokingly referred to myself as someone who watches policy disasters in slow motion.
For instance, as early as 1994, I had warned about the Orange County, California facing a $1.69 billion investment portfolio loss leading to its ultimate bankruptcy. Moreover, since 1999, the significantly increased fixed income pension plans approved by the California State Legislature have been squeezing the financial budgets of various cities in California.
On August 28, 2018, as the legislative session was coming to an end, the California State Senate voted on Bill 3120, extending the statute of limitations for filing civil lawsuits related to childhood sexual abuse.
On that day, prior to discussing this bill, I had several opportunities to express my concerns about the financial situation of California school districts to my 39 colleagues in the State Senate. Among approximately 1,000 school districts, most are showing unrestricted net deficits on their balance sheets. And I was the only state senator who opposed this bill.
Given the approval of hundreds of bills by the legislative body towards the end of the session, I kept my remarks concise. Here is a brief summary of my statement:
“I oppose A.B. 3120. I have repeatedly highlighted the dire financial condition of our school districts.
“Extending the statute of limitations for civil lawsuits regarding childhood sexual abuse is a just and reasonable move. However, this could severely impact certain school districts in the state, some of which may not even be able to secure insurance. It could become the final straw that breaks the back of many schools, businesses, and non-profit organizations.
“And the bill we are witnessing now could cause significant financial harm to institutions that believed these matters were settled. We are opening up a thorny legal issue that could have adverse financial effects on many institutions. I suggest voting against it rather than in favor. Thank you, Madam President.”
The bill was previously vetoed by former Governor Jerry Brown, who was well aware of the potential financial implications for state government agencies.
However, the current Governor Gavin Newsom signed a similar bill, known as Bill 218, in 2019.
As warned by me, the troubles are escalating now. The Los Angeles Unified School District recently announced issuing $500 million in bonds to cover the new litigation and settlement costs, putting a strain on the district’s already tight finances in meeting annual principal and interest payments.
Similarly, Los Angeles County is issuing $4 billion in bonds for the same reason. In fiscal rankings across counties in California, Los Angeles County ranks near the bottom. In the coming months and years, as more financial crises unfold, how will other municipal authorities across the state respond? Ask any school district in California whether they are heading to court or opting for settlements. Then, inquire how they plan to cover these costs.
California is not the only state elongating statutes of limitations, leading to uninsured or underfunded institutions. The Missouri State Legislature took similar actions in February.
Presently, California finds itself facing significant budget deficits, unable to provide financial aid. The state has halted repayment of what was called the California “debt wall” by Brown, and will not be paying out other post-employment benefits for the next two years.
Additional borrowing means California is one of only two states yet to repay loans from federal government unemployment relief funds. According to per capita unrestricted net asset rankings, California has dropped from 41st to 43rd in the past six years.
In recent years, the gradual emergence of predicted financial crises has become relatively easy to observe. Trying to demonstrate a “righteous sternness” when it is clearly unaffordable has already caused financial harm to 944 school districts, 73 community college districts, 482 cities, and 58 counties in California. In the coming months and years, their financial situations will face even greater crises.
This is the cost of a bad conductor driving a train. There is a saying that goes, “As California goes, so goes the nation.” Unless California’s financial leaders act more wisely, I, along with you all, will witness this slow-motion financial collapse.
About the Author:
John Moorlach is the director of the Public Accountability Center at the California Policy Center, focusing on government financial transparency and accountability. He has served as a California State Senator, Orange County Supervisor, and Tax Commissioner. In 1994, he foresaw the potential bankruptcy of Orange County government and actively participated in the county’s financial restructuring and structural reform, helping the sixth most populous county in the United States achieve financial stability.