According to a new website run by California State Auditor Elaine Howle and her staff, the dozen most populated cities in California all have significant fiscal problems and will be forced into major adjustments in coming years.

Eleven of the cities – Los Angeles, San Diego, San Jose, San Francisco, Fresno, Sacramento, Long Beach, Bakersfield, Anaheim, Santa Ana and Riverside – face what Howle classified as moderate risk. One – Oakland – was seen as a high risk.

All 12 of the cities face considerable stress from the rising cost of pensions. Several – especially Los Angeles – also have vast unfunded health care obligations for their retirees. 

Howle’s findings were depicted as surprising in a Sacramento Bee analysis, which focused on the health of the state economy and the low unemployment rate. But government finance experts have long warned that California’s cities – which have seen the cost of post-employment benefits roughly triple over the last 30 years – are in a far worse position to deal with pension bills that the state and counties. That’s because total employee compensation takes up a much bigger chunk of city budgets.

Howle warns cities to prepare for recession

At a news conference introducing the website, Howle said a primary goal was making sure that both local officials and residents of each city would use her office’s analysis to prepare for a possible economic downturn. Even a mild recession is likely to reduce revenue that cities get from sales and hotel taxes and from development permitting.

“If some of these [cities’] costs continue to go up and these cities aren’t prepared for them, they will have to cut services in order to pay pensions, to pay for benefits, to pay for the debts that some of the cities have taken on,” Howle said, according to the Sacramento Bee. She specifically said nearly half the cities will struggle to meet their steadily increasing payments to CalPERS.

Rankings on the website are based on the 2016-17 fiscal year, with a focus on each city’s pension obligations, pension funding, pension costs, anticipated future pension costs, retiree health care expenses, debt burden, liquidity, general fund reserves and revenue trends.

Overall, 18 cities were said to be at high risk overall, 236 at moderate risk and 217 cities at low risk. Compton – which has not produced an audited overview of its finances in five years – was judged to be in the worst shape, followed by Atwater and Blythe. 

The other cities listed at being high-risk: Lindsay, Calexico, San Fernando, El Cerrito, San Gabriel, Maywood, Monrovia, Vernon, Richmond, Ione, Del Ray Oaks, Maryville, West Covina and La Habra.

Among the cities found to be in the best shape: Rancho Cucamonga, Chino Hills, Poway, Indian Wells, Rancho Mirage, La Quinta and Mountain View.

The fact that 2-year-old information was being presented by the auditor as a snapshot of cities’ current fiscal health prompted criticism from the League of California Cities.

“It doesn’t tell the story of now, and so we’re not really clear on how helpful this dashboard is to the public, to the cities or basically anybody,” Jill Oviatt, director of communications and marketing for the league, told the Bee. She likened Howle’s rankings to “a data dump that’s void of context and analysis.”

The auditor found “that nearly 12 percent of California’s more than 79,000 foster children were prescribed psychotropic medications during the fiscal year 2014-15, whereas studies suggest that only about 4 to 10 percent of non-foster children are prescribed these medications.”

Even considering that “children in foster care … often have a greater need for mental health treatment,” the auditor points to serious concerns about possible over-medication, given these substances’ potential adverse side effects.

The key concern, raised by a five-part San Jose Mercury News investigative series beginning in 2014: “They are wrenched from abusive homes, uprooted again and again, often with their life’s belongings stuffed into a trash bag. … But instead of providing a stable home and caring family, the state’s foster care system gives them a pill. With alarming frequency, foster and health care providers are turning to a risky but convenient remedy to control the behavior of thousands of troubled kids: numbing them with psychiatric drugs that are untested on and often not approved for children.”

The auditor studied case files for 80 foster children in Los Angeles, Riverside, Madera and Sonoma counties and found that “many foster children had been authorized to receive psychotropic medications in amounts and dosages that exceeded the state’s recommended guidelines.”

Furthermore, the auditor found that “many of these children do not appear to have received follow-up visits or recommended psychosocial services in conjunction with their prescriptions.” And “counties did not always obtain required court or parental approval” before administering the drugs. The scathing report also pointed out that the current decentralized child-welfare system has reduced the state’s ability to oversee the process.

The most controversial legislation, which passed with a unanimous vote in the Assembly and which had only three “no” votes in the Senate, is Senate Bill 1174. The bill gives the Medical Board of California more power to investigate and prosecute “repeated acts of clearly excessive prescribing, furnishing or administering psychotropic medications to a minor without a good faith prior examination of the patient and medical reason.”

As the official Senate bill analysis points out, opponents believe “that initiating investigations as proposed will ultimately target prescribing physicians who specialize with patients with severe mental health difficulties” and would prefer a “review panel” by professionals who “could review outlying prescribing practices.” The California Medical Association, for instance, argues the bill will discourage physicians from working in these environments, according to a news report.

Senate Bill 1291 is mostly a record-keeping measure: “This bill would require annual mental health plan reviews to be conducted by an external quality review organization and, commencing July 1, 2018, would require those reviews to include specific data for Medi-Cal eligible minor and non-minor dependents in foster care, including the number of Medi-Cal eligible minor and non-minor dependents in foster care served each year.”

The final measure is Senate Bill 253, which also passed overwhelmingly. It requires that “an order authorizing the administration of psychotropic medications to a dependent child or a delinquent child in foster care be granted only upon the court’s determination that the administration of the medication is in the best interest of the child.” The main opposition to SB1291 and SB253 involved concerns over resource and budgetary matters.

These measures address, in part, the auditor’s call for a more “effective oversight structure” of drug prescriptions in the foster-care system. For instance, the auditor argues that counties should be better monitoring requests for such drugs; should “ensure court approval or parent consent prior” to their prescription; require that physicians follow up after such prescriptions; and “ensure proper mental health services are received along with psychotropic drugs.”

Three other related bills now are law. They require closer monitoring of psychotropic prescriptions at group homes and provide other expanded reporting and monitoring of such prescriptions. The main goal is to provide more oversight given the large percentage of foster-care children who are prescribed such drugs. As the Chronicle reported: “As many as 20 percent of foster children age 6 and older receive psychotropics, according to data compiled for senators.” And the state auditor found that more than a third of them had such drugs prescribed “without the required court approval.”

California’s reforms reportedly go further than those in other states. The governor’s decision on these three bills is well worth watching.

Steven Greenhut is the Western region director for the R Street Institute. He is based in Sacramento. Write to him at sgreenhut@rstreet.org.

Testifying at a recent hearing of the Assembly Committee on Privacy and Consumer Protection and Select Committee on Cybersecurity, Howle said 73 of the 77 agencies she reviewed had inadequate or worse safeguards against hacking. Her three biggest concerns: the state’s court system, the Board of Equalization and the California Public Utilities Commission.

Howle’s remarks were countered by a representative of the Brown administration. The state Department of Technology’s chief information security officer, Michele Robinson, said Howle had exaggerated the state’s problems.

But lawmakers didn’t appear to accept Robinson’s defense of the state’s efforts. Assemblywoman Jacqui Irwin, D-Thousand Oaks, told Sacramento TV station KCRA after the hearing that she considered Howle’s warnings “very disturbing. …  We have 160 departments that are holding your private information. So Social Security numbers, addresses, medical information — yes, there is a risk for the typical Californian.”

Here is the key summary of Howle’s 2015 audit:

In the past few years, retailers, financial institutions, and government agencies have increasingly fallen victim to cyber attacks. Most recently, in June 2015 the federal Office of Personnel Management announced that a cybersecurity intrusion had potentially exposed the personal information of approximately 20 million current and former federal employees and other individuals. Given the size of California’s economy and the value of its information, the state presents a prime target for similar information security breaches. Its government agencies maintain an extensive range of confidential and sensitive data, including Social Security numbers, health records, and income tax information. If unauthorized parties were to gain access to this information, the costs both to the state and to the individuals involved could be enormous. However, despite the need to safeguard the state’s information systems, our review found that many state entities have weaknesses in their controls over information security. These weaknesses leave some of the state’s sensitive data vulnerable to unauthorized use, disclosure, or disruption.

But Howle didn’t just offer this general conclusion. She also specifically criticized the Brown administration:

Despite the pervasiveness and seriousness of the issues we identified, the technology department has failed to take sufficient action to ensure that reporting entities address these deficiencies. In fact, until our audit, it was not aware that many reporting entities had not complied with its requirements. To determine whether reporting entities have met the security standards, the technology department relies on a self-certification form it developed that the reporting entities must submit each year. However, the poor design of this form may have contributed to many reporting entities incorrectly reporting that they were in full compliance with the security standards when they were not. Specifically, we received complete survey responses from 41 reporting entities that self-certified to the technology department that they were in compliance with all of the security standards in 2014. However, when these 41 reporting entities responded to our detailed survey questions related to specific security standards, 37 indicated that they had not achieved full compliance in 2014. … The technology department was unaware of vulnerabilities in these reporting entities’ information security controls; thus, it did nothing to help remediate those deficiencies.

According to KCRA, a state task force created last year could turn in the first draft of a state government cybersecurity initiative this month.

The Howle audit knocking the state government’s failure to worry enough about hackers was one of six harsh reports she issued in a three-month span last summer, as CalWatchdog reported. Perhaps the most alarming report found that the state did a poor job tracking mentally ill gun owners, despite a previous 2013 audit that warned about the shortcomings of the state’s efforts.

Nearly one in six California school districts has dropped out of a federal outreach program for low-income student health that brings millions in unfettered dollars into schools, citing bungled state management and years-long delays in receiving funds … . The exodus is part of the continuing fallout from a 2012 federal investigation that found California had “serious deficiencies” in its oversight and management of the School-Based Medi-Cal Administrative Activities program. The program reimburses schools for a portion of the cost of referring students to Medi-Cal, California’s name for the federal Medicaid low-income health insurance program.

 

After the 2012 investigation, federal officials temporarily froze payments to school districts effective July 1, 2012, recalculated previously paid claims submitted in 2011-12, introduced a formula for interim payments and devised a new method of calculating claims moving forward.

 

As a result, some districts are still waiting to be reimbursed for 2009 expenses, while others have been told to return money from previous reimbursements that are now under review.

Lax oversight, poor Internet security and more

It’s the sixth highly critical audit of state government since June. That’s an unusual concentration of negative reports based on a review of the auditor’s archive of reports and a Nexis search of recent years of Sacramento coverage. Many audits in past years offered mixed reviews of government agencies, such as this October 2012 assessment of how public universities report crime. This summer, audits appeared much more likely to be harsh.

Last month, Howle issued a report about wrongdoing revealed by state whistle-blowers. This is from the San Francisco Chronicle:

An engineer for the California Department of Transportation was busy working on his golf swing when he was supposed to be at work, according to an audit released this week detailing bad behavior by state employees and public agencies. … [The} report found 10 substantiated allegations from whistle-blowers with more than $4.2 million in wasted money, improper payments and misuse of work time by public employees.

 

The Caltrans engineer was found to have played golf on 55 workdays in a 19-month period while his time card listed him as working. State auditors faulted the engineer’s supervisor for failing to manage the employee or ensure his time sheets were accurate from August 2012 to March 2014.

 

The employee said he played golf as much as possible — for an estimated 4½ hours a day — during hours the auditor found he was supposed to be working.

 

The audit also found a month in May 2014 in which no one could account for how much work the engineer had done, if any, because there was a miscommunication about who was supposed to oversee the employee.

Also in August, Howle faulted state bureaucrats for being indifferent about Internet security. This is from AP:

Many state agencies are not complying with the state’s information technology standards, leaving them vulnerable to a major security breach of sensitive data such as Social Security numbers, health information or tax returns, the state auditor reported Tuesday.

 

“Our review found that many state entities have weaknesses in their controls over information security. These weaknesses leave some of the state’s sensitive data vulnerable to unauthorized use, disclosure, or disruption,” Auditor Elaine Howle wrote in the report. She notes that the state is a prime target for information security breaches as government agencies keep extensive amounts of confidential data. Many agencies also have not sufficiently planned for interruptions or disasters, she found.

State not tracking mentally ill gun owners

In July, Howle knocked Attorney General Kamala Harris and the state Department of Justice. This is from the Sacramento Bee:

Nearly two years after that the state Department of Justice and courts failed to identify thousands of mentally ill gun owners who are prohibited from having guns, the state auditor said Thursday that the department has failed to resolve its backlog of such cases.

 

State Auditor Elaine Howle wrote that the department’s “delays in fully implementing certain recommendations result in continued risk to public safety.”

 

Lawmakers in 2013 approved legislation appropriating $24 million to the Department of Justice to address a backlog of cases of prohibited people having guns. But the state auditor said the department had failed to fully implement seven of eight recommendations made in 2013 to improve department procedures.

 

For example, the department has not taken sufficient steps to ensure courts and mental health facilities are reporting mentally ill people for review, the audit said, and it continues to redirect staff to work on other priorities.

 

As of April, the audit said, the department had a review backlog of more than 257,000 people who are potentially prohibited from having guns.

In June, Howle ripped the State Bar of California. This is from AP:

The nation’s largest state bar failed to consistently protect the public from bad lawyers by settling hundreds of complaints, many without adequate discipline for botched cases or ethical violations, according to a scathing audit released Thursday that also found the organization has spent money with little financial accountability. …

 

As the state bar scurried to settle more than 5,100 backlogged complaints in 2010 and 2011, the severity of discipline imposed against attorneys decreased, according to the State Auditor’s report.

 

In 2012, the California Supreme Court rejected settlements reached with 27 attorneys because of insufficient discipline; 21 of those attorneys later got harsher punishments, including five who were disbarred, the audit said. Additionally, 131 attorneys whose complaints were settled in 2010 and 2011 later were disciplined after new complaints were filed, including 28 disbarments.

 

To reduce its backlog, the state bar allowed some attorneys whom it otherwise might have disciplined more severely – or even disbarred – to continue practicing law, placing the public at risk,” State Auditor Elaine Howle wrote to the governor and legislative leaders Thursday.

Call Medi-Cal, never get through

Also in June, Howle was sharply critical of the state Medi-Cal program. This is from AP:

Thousands of calls to California’s Medi-Cal complaint lines don’t get through, and thousands more that manage to ring the call center go unanswered, according to a new state audit.

 

For the year that ended in January 2015, the phone system to the Medi-Cal ombudsman’s office rejected up to 45,000 calls in a month, State Auditor Elaine Howle said in her report. Of the calls that did get through, only one-third and one-half were handled by ombudsman’s staff each month.

 

(B)etween February 2014 and January 2015, an average of 12,500 additional calls went unanswered,” the audit states. A department official blamed the unrelenting backlog and unanswered calls on inadequate staffing and “hardware limitations” that cause the call database to crash.

It is difficult to know what to make, if anything, of this rash of harsh audits. But former state Sen. Mark Wyland, R-Solana Beach, complained for years about a state government culture that he felt tolerated mistakes and poor performance. Perhaps the relative budget austerity of 2007-2013 led to even lower standards at some agencies.

The latest critique comes in a new report, “Data Reliability,” by State Auditor Elaine M. Howle. Subtitle: “State Agencies’ Computer-Generated Data Varied in Their Completeness and Accuracy.” Some key sections:

The U.S. Government Accountability Office (GAO), whose standards we follow, requires us to assess and report on the reliability of computer-processed information that we use to support our audit findings, conclusions, and recommendations….

Three assessemnts were made: “sufficiently reliable,” “not sufficiently reliable” and “undetermined reliability”:

In performing 53 data reliability assessments for State systems, we determined for the purposes of the audits that the data were sufficiently reliable in 19 assessments….

For 17 data reliability assessments, we concluded that the data were not sufficiently reliable….

For 17 data reliability assessments, we concluded that the data had undetermined reliability. 

So 36 percent were “sufficiently reliable.” And 64 percent were not.

Would the private sector be allowed to get away with that? If a business’ tax returns to the IRS were only 36 percent “sufficiently reliable,” the chief managers would end up in a federal klink. More:

For example, data from two California State University (CSU) systems were of undetermined reliability. We did not perform accuracy and completeness testing for CSU’s Common Financial System because the system contains summary-level data and we determined that it would not be cost-effective to trace this summary-level data back to the individual transactions that support the total. Likewise, we could not assess data reliability for CSU’s Common Management System by tracing to and from supporting documents because the system is primarily paperless. Alternatively, following GAO guidelines, we could have reviewed the adequacy of selected system controls to determine whether data were entered reliably. However, because it was cost prohibitive, we did not conduct these reviews.

So what we have here is basic government incompetence. The state general fund gets $110 billion of our tax dollars, but its data systems are basically unreliable. We have no idea how the money in government is spent, nor how effective it is at what it’s advertised to do.

The analysis took Brown's view seriously. But should it have?

California has the highest effective poverty rate in the United States. The state auditor just put out a report that lists fundamental state problems that never get any better. The state government is pushing a project on track to be the biggest boondoggle in world history. And Jerry Brown thinks the rest of America should copy California!

But the single most hilarious part of the Times piece was Brown's suggestion that he had figured out how to counter income inequality:

“Since retaking office in 2011, Brown has raised concerns about growing income inequality across the country, calling it a risk for the United States' long-term political and economic stability. Months after persuading state voters to increase income taxes for those making more than $250,000 per year, Brown is now set to raise California's minimum wage to $10 per hour by 2016 — the highest in the nation.

“Democratic leaders hope the changes in California could help build momentum for national change.

“'This new law puts Californians ahead of the curve. Now, it's time for Congress to follow suit,' House Minority Leader Nancy Pelosi (D-San Francisco) said after Brown signed the wage increase.”

Tinkering on income margins hardly a national solution

Economists who read that will want to laugh or cry or both. Raising taxes on the rich and upping the minimum wage literally addresses problems on the margins — a relatively small reduction in the wealth of the rich and a big increase in minimum pay that still doesn't lift people into the middle class. It is no long-term response to income inequality, which is the product of big societal and economic shifts. I wrote about them here:

“When you set aside the class-warfare rhetoric that Democrats so enjoy, the drivers of income inequality are plain. The first is rarely acknowledged. It’s the increasing tendency of highly educated professionals to marry each other. Doctors used to marry nurses. Now they marry other doctors, concentrating family wealth.

“The second is that the modern economy places an ever-higher premium on job skills, and yet we don’t have a public education system that responds to this fact. In 2013, how is it possible that a year or more of computer science isn’t a universal high school graduation requirement?

“It’s not just information-technology jobs going unfilled because of a mismatch between what schools teach and what employers need. In many skilled-job categories — welders, critical-care nurses, electrical linemen, special-education teachers, geotechnical engineers, respiratory therapists — unemployment is practically zero.

“So long as we have an absurdly complex tax code in which the amount that the very wealthy pay depends on the skill of their tax attorneys, the Occupy argument that the U.S. is rigged to help the rich will resonate with some. But this doesn’t address the disconnect between what our schools teach and what our economy needs.”

Better education get to limiting income inequality

My views are not fringe views. They're in the mainstream of how economists look at income inequality. This is from a Harvard professor's piece for the Huffington Post:

“High and rising income inequality in the United States has recently been widely commented upon. What has not been as widely discussed is the role educational attainment has played in these disparities. …

“In many ways, our two economies have created two separate societies. Those with low educational attainment drift permanently between recessions and depressions, with little stability. Those with high educational attainment experience increased wealth, only mild recessions, and interesting projects with personal growth.

“Additionally, these numbers suggest that our lack of highly-skilled knowledge workers is a major binding constraint on the growth of the American economy. In 2006 and 2007, unemployment rates for the highly-skilled group were as low as 2% — a figure viewed as basically beyond full employment. These results also imply that further economic growth in 2007 would have resulted in even higher wages (and more income inequality) for the more highly educated group.”

Jerry lucky to be covered by hagiographers

How strange that Jerry Brown, who wants us all to think that he's the smartest guy around, would offer the simplest and dumbest “template” for addressing income inequality — one that largely treats symptoms of income inequality as the causes of it. Unfortunately, it's not strange that the L.A. Times would let him get away with it.