California is a financial mess. In December, the state auditor released his “Updated Assessment of Issues and Agencies That Pose a High Risk to the State,” reporting that “Late Financial Reporting Remains a High-Risk Issue.”
The people who are supposed to be watching the risks are themselves a risk. “Financial Reporting” has been on the high-risk list since 2020.
State Controller Malia Cohen, seeking a second term in the office to which she was elected in 2022, told us that there has been “significant progress” to improve reporting and to file the state’s chronically late Annual Comprehensive Financial Reports closer to their deadlines.
“I’ve learned it takes a long time to get things done,” she told our editorial board, explaining that people “blow through deadlines” and departments don’t always have employees with the right skill sets to do the work. She similarly expressed concern about inadequate internal controls across state government.
But asked how to fix these problems, whether it would require legislation or money, or if it was institutional inertia, Cohen basically said she didn’t know.
The controller is the state’s chief fiscal officer, accountant and bookkeeper, and sits on dozens of boards including those of California’s largest employee pension funds. It’s a financial job. Malia Cohen, however, is not a financial professional. Her expertise is in politics. As the top official overseeing roughly 1,600 employees, she is heavily reliant on the judgment and performance of others.
As an example of how that can go wrong, the state auditor found that the “controller made material errors” totaling $11 billion in the reconciliation of education funding in the fiscal year 2022-23 Annual Comprehensive Financial Report, as well as $6.1 billion in “material errors” the following year.
In November, California voters have a better option — a candidate with the relevant expertise and independence to cut through the inertia and restore accountability.
Herb Morgan, who grew up in Westminster and Oceanside and lives in San Diego, spent 40 years working in finance. He founded an investment firm, grew it to manage $1.5 billion in assets and later sold it to a large Wall Street company, where he served as their chief investment officer for about a decade. He retired earlier this year.
Morgan also has some experience with the challenges of public finance, having served on the board of the San Diego City Employees’ Retirement System. He was appointed by Mayor Jerry Sanders in 2009 to help get the fund back on track after serious problems in the early 2000s. Morgan was twice elected board chair by his fellow trustees.
As a candidate for controller, Morgan has demonstrated that he can provide what he calls “radical transparency,” creating a website that pulls California’s current spending data out of the balky FI$Cal financial system and makes it accessible to the public.
Morgan also created a campaign finance tracker that shows every donation to his campaign, with verified transactions “recorded on the blockchain for immutable transparency.”
It’s a reminder that technology has provided tools for financial oversight that were not available even ten years ago. Much can be done to bring transparency and accountability to California’s finances, if the official in charge is knowledgeable and experienced. Herb Morgan is both.
Morgan told the editorial board the controller has the authority to mandate accounting methodology and reporting techniques. He said he could use the powers of the office to audit any entity that touches state funds. Homelessness spending and high-speed rail are two obvious candidates for an auditor’s scrutiny.
California’s annual budget has soared above $300 billion. The Legislative Analyst’s Office has warned of structural deficits as spending growth outpaces revenue growth. State taxes are among the highest in the nation, waste and fraud are rampant, and Sacramento’s answer has been to tap the rainy day reserves and use “budget borrowing” to kick the can down the road.
If any state ever needed a financial watchdog, it’s this one.
Herb Morgan is a rare candidate with experience and ideas perfectly matched to the office he’s seeking, at a time when California is especially in need of his skills. He deserves your vote and we endorse him for controller.