Capitol Journal: Taking money meant for financially pressed homeowners and using it to balance California’s budget is plain wrong

Gov. Jerry Brown and the Legislature just showed why many voters don’t trust Sacramento politicians with money — and why last year’s gas tax increase could be repealed on election day.

Ruling Democrats never quite get it. They become caught up in crafty, hurry-up maneuvering in the dark and forget that what they’re concocting often looks ugly when the light shines, which it inevitably does.

Here’s the story briefly: In 2012, Brown and the Legislature took $410 million that was supposed to assist victims of abusive mortgage lending and used it to help balance the state budget. Homeowner groups sued. Two courts ruled against the state and ordered it to replace $331 million.

Just before the current Legislature adjourned Aug. 31, lawmakers passed a bill essentially telling the courts to go pound sand. The measure “confirmed” that Brown spent the money “consistent with the direction given” him by the 2012 Legislature. So there! The governor signed the bill last week.

“The Legislature and the governor said, ‘In your face, judge, we’re going to do what we want to do regardless of how you rule,’” says state Sen. John Moorlach (R-Costa Mesa), a former Orange County treasurer-tax collector.

Brown is appealing the case to the state Supreme Court, which hasn’t decided whether to take it.

But regardless of what the court does and whether what the governor and Legislature did was legal or illegal, it was plain wrong. You don’t take money meant for financially pressed homeowners — or former owners who were improperly foreclosed on — and spend it on convenient budget balancing.

“We were facing a difficult budget crisis in 2012,” says H.D. Palmer, spokesman for Brown’s finance department.

Yes, the state was. But it isn’t today. It’s rolling in money, on its way to amassing a $13.5-billion cash reserve.

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That disputed $331 million should be spent belatedly to help victims of bad mortgages, or at least on some housing program.

The money came from a 2012 settlement reached by the nation’s five largest mortgage servicers — Bank of America, Wells Fargo, Citigroup, JPMorgan Chase and GMAC — in a suit filed by the federal government and every state except Oklahoma. Lenders were accused of deception and improper foreclosures.

The banks paid $20 billion directly to foreclosed homeowners. In addition, it sent $2.5 billion to the states, with California getting the biggest pot, $410 million.

“Each state attorney general shall designate the uses of the funds,” the agreement decreed. “To the extent practical,” it continued, the money should be spent to assist foreclosure victims and to avoid future mortgage abuses.

Then-state Atty. Gen. Kamala Harris — now a U.S. senator — helped negotiate the settlement and, as required by the agreement, designated several housing-related uses for the money. Brown and the Legislature virtually ignored her list.

What they mostly did with the money was use $316 million to make payments on $5 billion in housing bonds approved by voters in 2002 and 2006.

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So, wait a minute: The settlement money was supposed to help current mortgage victims and prevent future calamities — not to be used for making payments on old bonds.

That’s essentially what trial and appellate courts ruled. And it’s certainly what Harris thought. In a rarity, there was dissension in the highest Democratic ranks, with Harris objecting to Brown’s use of the money.

In a 2012 written statement, she said: “These funds should be used to help Californians stay in their homes. I plan to work with the governor and Legislature toward a balanced budget that honors our obligations to California’s homeowners.”

The work didn’t pay off. And when the state was sued, Harris opted not to defend it. Brown was forced to hire private attorneys.

In its appeal to the California Supreme Court, the Brown administration is making the state attorney general a separation-of-powers issue. Wearing an odd-looking hat, the state’s chief executive is taking the Legislature’s side.

“Does the Legislature or the attorney general have final authority to decide how to spend money paid to the state?” Brown asks in a petition to the court. The lower courts’ rulings, he asserted, are “squarely at odds with the fundamental principle that the Legislature holds the power of the purse.”

The legislation telling the courts to take a hike passed on party-line votes in each house — Democrats for, Republicans against.

“The bill doesn’t make any difference for two reasons” says Neil Barofsky, a lawyer for the National Asian American Coalition and other groups suing the state. “What one legislature says six years later about what a previous legislature did doesn’t matter.

“And even if the court didn’t see it that way, it wouldn’t matter. The governor is bound to follow the federal consent order” — the mortgage settlement. “That’s his obligation.”

Sacramento politicians have long had a reputation for raiding pots of money set aside for one purpose and using it for another. Some of the reputation is deserved, some not.

In 2003, Gov. Gray Davis and the Legislature grabbed California’s share of a $206-billion national settlement with tobacco companies and used it for budget-balancing. It should have been spent on smoking prevention and treating health problems caused by tobacco.

Currently, opponents of the gas tax hike that’s raising money to repair dilapidated roads accuse the state of pilfering past highway funds for other purposes. It’s basic baloney, but an effective pitch to voters.

Regardless of what the state Supreme Court does, Sacramento Democrats already have lost by snatching the mortgage money.

george.skelton@latimes.com

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