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California's Mortgage Raid

California Gov. Jerry Brown

California Gov. Jerry Brown


Rich Pedroncelli/Associated Press

California Governor Jerry Brown was ordered by a state appellate court this summer to return $331 million in funds that his administration had unlawfully diverted from the national mortgage settlement for budget triage. His response? Take a judicial hike.

The five largest mortgage servicers in 2012 paid more than $20 billion to atone for alleged abuses. Most of that cash flowed directly to foreclosed homeowners, but $2.5 billion was earmarked for state homeowner assistance and consumer protection programs. California’s haul was $410 million.

Amid yawning deficits, Mr. Brown redirected $331 million to the Justice Department and debt service on housing bonds issued in 2002 and 2006. Liberal groups that stood to benefit from state grants for homeowner programs sued, and Mr. Brown argued that the Legislature had given him carte blanche to spend the funds.

But as a three-judge appellate panel noted in July, “this would effectively defeat the purpose of creating a special deposit fund to house the money.” The state had also agreed in the national mortgage settlement to use the funds for purposes specified by then Attorney General Kamala Harris, which did not include budget backfill.

The state’s position would “raise serious doubts,” the court explained, “not only as to whether the Legislature may override a federal judgment, but also whether the Legislature constitutionally may delegate to an agency the authority to decide how millions of dollars of state funds shall be spent with virtually no guidance or direction from the Legislature.”

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The judges gave the Legislature the benefit of the doubt by holding that it could not truly have intended for the Governor to flout the settlement. But Mr. Brown appealed to the state Supreme Court, and Democratic lawmakers have now made themselves explicitly complicit in his lawlessness by passing legislation that claims “to abrogate the holding of the Court of Appeal” and asserts his settlement fund raid was “consistent with legislative direction and intent.”

But neither the Governor nor the Legislature may override a court settlement. Imagine the outcry if Texas were to use settlement funds to, say, house detained illegal immigrants. With nearly $14 billion in reserves, California is no longer starved for cash. But more important than the misuse of money is the state’s contempt for the law. Democratic norms?


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