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Editor’s Note: John Moorlach’s involvement in politics began in 1994 when he presciently predicted problems with Orange County’s investment pool, which eventually was forced into bankruptcy. For almost 30 years, Moorlach was elected to a variety of posts, including State Senator and Orange County Treasurer and Supervisor.
On April 10, California real estate owners paid the second installment of their property taxes. By April 15, everyone should have either filed their income tax returns or an extension of time to do so, along with the first estimated payment, if applicable. Both taxes are reasonably predictable.
Real property taxes rise by a maximum of 2% every year. However, that increased 2% is based on the assessed value. School bond measures are not subject to the 1% limit on assessed value. And 236 school bond measures were approved throughout California by voters in 218 school districts last year. So, their property tax bill amounts will rise more noticeably.
So, every property owner in the impacted school district will be taxed on their proportionate share of the annual bond payments based on their assessed value in addition to the 1%. For example, if a school district’s payment works out to $20 per $100,000 of assessed value, someone who purchased their home many years ago and has an assessed value of $500,000 will pay $100 more per year in addition to the $5,000 property tax ($500,000 times 1%). If the next-door neighbors purchased their home recently for $2 million, they will pay an additional $400 on their annual property tax of $20,000.
Then there are the sales taxes. Out of California’s 482 cities, 124 of them successfully raised sales tax rates at the ballot box last year.
Thanks to unwise environmental and electric grid policies mandated out of Sacramento, the state has been burning itself up. And homeowners are seeing the repercussions with two-digit increases in their insurance premiums. Their auto insurance premiums have also increased an average of 15%.
Speaking of transportation, California also suffers the highest gasoline costs in the nation. And the cost of recharging electric vehicles is not cheap either, as utilities are demanding rate increases because of the costs relating to the wildfires.
Californians are not the only ones paying these higher costs. So are their cities, counties, school districts and other municipalities.
No wonder so many sales tax increases were on last year’s ballots.
Because Gov. Gavin Newsom refused to pay the federal government for unemployment benefit loans, the Federal Unemployment Tax (FUTA) is higher for California businesses. Almost a year ago, the Business Journal reported on this tax that the public doesn’t know much about.
I hate to be a “Debbie Downer,” but you haven’t seen anything yet.
The Weather Tax
We live in a very taxing state. But the weather’s great.
The state’s three most prominent cities are facing big shortfalls.
Our neighbor to the north is looking at a budget deficit next year of $1 billion!
As if this year’s fire damages weren’t enough, elected Los Angeles City Controller Kenneth Mejia said in a recent statement, “As we are all painfully aware, revenue shortfalls, liability payouts and departmental over-expenditures caused the city to draw down nearly half the City’s General Fund Reserves. Because of the city’s revenue shortfall and overspending, this led to austerity measures that adversely impacted city departments and city services including in critical areas related to infrastructure, public works, animal services, accounting and payroll.”
San Francisco announced that its newly elected mayor is facing an $840 million budget deficit over the next two years. San Diego’s mayor is stressing over a $250 million budget deficit for the upcoming fiscal year, all the more so because his recent sales tax increase measure failed at the ballot box.
And if things weren’t fiscally straining enough for municipalities, two bills by former Assemblywoman and California Labor Federation leader Lorena Gonzalez Fletcher, AB 3120 in 2018 and AB 218 in 2020, extended the statute of limitations on suing employers of sexual abusers. This has resulted in an announcement by Los Angeles County that it is negotiating a potential $4 billion settlement with victims. Who knows what to expect from the other 57 counties. But taxpayers will be the proverbial “deep pockets.”
No Escape for the OC
Wildfires, sexual abuse settlements, overspending, budget deficits and continuing demands for pay raises by public employee unions… you thought Los Angeles was having a rough time of it, Orange County is following closely behind with the same ailments. How Orange County, its cities and school districts address these fiscal challenges will have an impact on the OC’s businesses and workforce.
The recent Airport Fire in the Santa Ana Mountains finds the self-insuring decision has fallen short. Apparently, the County has reduced the fund balances over time for other expenditures. And where was the “umbrella policy?”
Even a city like Costa Mesa, with a sales tax revenue generating machine like South Coast Plaza, is already trying to deal with a budget deficit for the 2025-2026 fiscal year starting on July 1. On a fiscal basis, Costa Mesa ranks the second worst city in Orange County.
Then there are the defined benefit pension plans with very generous formulas that were approved mid-course. Public pension systems are still only two-thirds funded.
Many public employees also have retiree medical plans, called Other Post-Employment Benefits or OPEB, to benefit them in retirement. The state of California alone has an unfunded actuarial accrued liability of more than $90 billion for this attractive perk.
Municipality employees have had to deal with inflation and the rising costs of housing, so their public employee unions are still demanding wage increases. Ask some 300 employees at the Santa Ana Unified School District how recently approved pay raises worked for them. They received termination notices.
With pay increases come pension and OPEB plan contribution increases. And with a volatile stock market comes the possibility that public pension systems will not achieve their 7% rate of return assumptions and, of course, higher employer contributions.
And just like a python kills its prey by squeezing it to death, California and its municipalities at all levels will be doing the same to its businesses and residents. Be prepared. Taxing days lie ahead.
Now would be a great time to give every elected official a copy of the Municipal Finance Triage Guide, released last September by California Local Elected Officials (CLEO), a division of the California Policy Center. It offers practical strategies for them to improve budget management and address fiscal challenges before they escalate into something worse.
I was the Chairman of the Orange County Board of Supervisors in 2008, the height of the Great Recession, and we had to lay off some 1,000 employees. So, I’m just saying, for California’s self-inflicted municipality budget woes, “iceberg dead ahead.”