CalSTRS

Rising California Pensions Costs Major Concern for Credit Rating Agencies

April 2, 2019 By Chris Reed 2 Comments

A new Public Policy Institute of California poll shows the number of state residents worried about the cost of government pensions is at a 14-year low. In recent remarks to the Commonwealth Club in San Francisco, new state Superintendent of Public Instruction Tony Thurmond rejected the idea that pension costs were generally a major problem for school districts around the state.

But a recent comprehensive review by the Bond Buyer painted a starkly different picture. Based on interviews with officials in credit-rating agencies and the state’s Fiscal Crisis Management Action Team (FCMAT), as well as reviews of financial records from large school districts across the state, it forecast a wave of state takeovers of districts under the provisions of a 1991 state law that provides emergency loans to districts that can’t pay bills. But the loans come with the condition that district superintendents and school boards lose considerable autonomy over their budgets, which must have as a first priority repaying the loan to the state.

Nine districts have taken out such loans since 1991, and the Sacramento City Unified School District could become the 10th this fall when it is expected to run out of dwindling cash reserves.

A Fitch Ratings analysts told the Bond Buyer that about 50 of the 124 school districts it tracks have such low reserves that if an economic slowdown froze or reduced state revenue, those districts could quickly lose their capacity to pay bills. The same problems seen by Fitch in the larger districts that it monitors are likely to be seen in the 1,000-plus smaller districts it doesn’t track.

Low birth rate hurts enrollment

Since California’s overall population keeps going up, that’s obscured a key complication in school finances: The fact that school enrollment in much of the state is in the middle of a broad, long-term decline driven by changing demographics and birthrates that in 2017 hit an all-time low for the Golden State. FCMAT CEO Michael Fine estimates that 65 percent of the state’s 1,200 districts have fewer students than they used to. Perhaps the most dramatic decline is in Inglewood Unified, where present enrollment is 8,000 – about 40 percent of what it was in 2004.

Because state funding is based on the Average Daily Attendance formula, the enrollment declines can hammer districts even in a decade in which state funding for education has increased by more than 70 percent. That’s because many school districts don’t reduce their staffs by an amount equal to the lost enrollment. A FCMAT report on Oakland Unified issued last May called this a key factor in the financial strain faced by the district.

Another issue is that retirement benefits in some districts don’t just include pensions from the California State Teachers’ Retirement System. Some districts, including Los Angeles Unified and Sacramento City, offer generous health insurance to retirees for as long as they live.

S&P rating service downgraded LAUSD’s bonds last month. Fitch downgraded some of Sacramento City’s bonds in February, and further downgrades seem certain.

CalSTRS needs booming market

Officials with CalSTRS remain optimistic that healthy investment returns can reduce CalSTRS’ present unfunded liabilities of about $100 billion. Boom markets on Wall Street have at times allowed CalSTRS to keep mandatory pension contributions relatively flat for years at a time.

But the 2007 recession hammered CalSTRS, forcing the Legislature and Gov. Jerry Brown to pass a bailout measure in 2014 that will roughly double annual contributions from districts, the state and teachers by July 2020, when its final increase is phased in.

But hopes that profitable investments will be a big help in reducing liabilities aren’t coming to pass. The Sacramento Bee reported recently that CalSTRS only had a 1.62 percent return on its portfolio for the first eight months of fiscal 2018-19 and was not expected to meet its target of a 7 percent annual return.

This article was originally published by CalWatchdog.com

Filed Under: Top Stories Tagged With: CalSTRS, Pension Reform, pensions, Public Policy Institute of California

Despite Budget Crisis, Oakland Teachers Demand 12 Percent Raise

February 16, 2019 By Chris Reed 6 Comments

With 95 percent of Oakland Unified teachers already having approved a strike that appears likely to begin Tuesday, the school district could face weeks of turmoil – unless, like Los Angeles Unified leaders did last month, Oakland Unified agrees to give substantial raises to teachers. But there are outside experts that think the district can’t afford to provide the raises.

The teachers union – the Oakland Education Association – wants a 12 percent increase phased in over three years. The district has offered a 5 percent raise over three years. The union and district have been unable to agree on a contract since the last one expired in 2017.

That’s at least partly because Oakland Unified is in a financial bind that is worse than many other districts. It has the same problem as other districts in dealing with the increasingly heavy annual cost of the Legislature’s 2014 bailout of the California State Teachers’ Retirement System. The bailout – phased in from 2014 to 2021 – requires school districts to increase by more than 130 percent their annual contributions to CalSTRS.

But Oakland Unified also has seen among the sharpest enrollment drops of any state school district, falling from 54,000 to 37,000 since 2003. Because state funds depend on average daily attendance, this has wiped out many non-mandatory programs.

Schools kept open despite huge drop in enrollment

Yet Superintendent Kyla Johnson-Trammell and other district officials have been leery of closing schools because of parents’ concerns, leaving nearly 11,000 empty seats in often half-full schools. They’ve also failed to significantly reduce administration and support staff even as enrollment has dropped by more than 30 percent.

That may change soon. According to a Bay Area News Group report, to free up money for raises for the district’s 3,000 teachers, the Oakland school board is prepared to lay off 90 administrators and nearly 60 school support workers to generate annual savings of $21.75 million. Oakland Unified officials say that this will not only pave the way for labor peace, it will help reduce the district’s structural deficit, which is otherwise on track to top $56 million by the 2020-21 school year. They have also vowed to follow through on staff recommendations that 24 schools be closed.

But a 2017 analysis by a state agency that helps school districts in financial distress raises a question that most local coverage of Oakland Unified doesn’t address: Can district staff be trusted to competently manage its $500 million-plus budget?

After looking at district budget information dating back to 2010, the Fiscal Crisis & Management Assistance Team (FCMAT) depicted the district as on track to a “fiscal emergency” because of its slowness to acknowledge, much less respond to, obvious problems. It noted that the school board had approved pay raises – including boosts of about 15 percent for teachers from June 2014 to January 2017 – without first identifying how they would be funded. FCMAT also cited “constant turnover” in key positions; a lack of district supervision of how schools deal with spending decisions; and an “abundance of budget exceptions granted to sites and departments that overspend.”

District hoping for emergency state loan

In the short term, the district has taken steps to secure an emergency state loan of $34.7 million. But as the EdSource website reported in September, the district still hasn’t fully paid off the $100 million emergency state loan it got in 2003.

State officials may feel that for political reasons, they have no choice but to help Oakland Unified again. But as FCMAT and others have noted, the district’s enrollment is expected to keep plunging – even as pension obligations keep growing. A 12 percent raise for teachers would only make achieving fiscal stability even more daunting for district leaders.

L.A. Unified school board members heard similar warnings last month, but chose to provide a 6 percent raise to teachers –just shy of the 6.5 percent the teachers union had wanted.

This article was originally published by CalWatchdog.com

Filed Under: Top Stories Tagged With: CalSTRS, oakland

California Doesn’t Have a Budget Surplus

November 25, 2018 By Todd Royal 5 Comments

It’s become common folklore that California is booming and incoming Gov. Gavin Newsom and the Democratic supermajority have more taxpayer money than they will know how to spend, save or invest. Nothing could be further from the truth; and it’s the California voters and taxpayers who will continue to be pay for this mistake. We literally owe trillions that isn’t being discussed. Just the estimated payments on public employee pensions in California will increase from $31 billion in today’s dollars to $59 billion in 2024; and this number is based on non-recessionary conditions or a major correction in the stock market. And California immediately needs $800 billion to over $1 trillion worth of infrastructure repairs, upgrades and new construction.

A conservative estimate of California’s total debt by the California Policy Center in a 2017 study – before new tax and bond obligations recently voted in were factored – puts California’s total local and state debt at $1.3 trillion. The Stanford University Pension Institute (www.pensiontracker.org) in 2017 calculated California’s unfunded liability at $1.4 trillion and CalPERS also with an unfunded liability of $1.4 trillion, with CalSTRS billions underwater as well to give, “real state debt of $2.8 trillion.”

Whichever calculation is used California owes trillions and doesn’t have a plan in place to address this issue. What should be clear is that California does not have a surplus or anything near a surplus factoring in total debt and infrastructure for a basic, functioning society California citizens and non-citizens expect. This figure also doesn’t factor in health care costs rising under Covered California, Medi-Cal or possibly expanding Medicare to include all Californians living in-state.

These financial and societal facts will affect overall fiscal health and the ability to pay back debts accruing interest or fall under the category of a future obligation. Government services at the state, county and local level are at risk if a recent announcement by the CalPERS board is taken into consideration titled, “Risks Report,” highlighted, “The greatest risk to the system continues to be the ability of employers to make their required contributions.”

Taxpayers will have to make up the shortfall through additional taxes – like eliminating Prop. 13, voting in a VAT or services tax or some combination thereof – otherwise first responder response times, social services for the poor and needy, and environmental standard protocols will erode.

There are other factors California will need to overcome to pay back their debt and realize we do not have a budget surplus. California’s unemployment rate rate is 33^rd in the nation at 4.1%. The national unemployment rate is 3.7%. We have the highest taxes in the nation when the variables of the gas tax, state income tax, and sales tax are put into the equation. Additionally, California has the highest housing and rents in the nation per amount of residents. The median home price in California is roughly $544,900 whereas the remainder of the United States is estimated at $220,000. We artificially suppress housing supply (particularly, single-family-home) – though demand hasn’t diminished – driving up prices. Our stringent environmental standards evidenced by CEQA, SB 375, AB 32, SB 100 and CARB is hurting job growth and economic sustainability.

High taxes and regulations; and a tough business environment are some of the reasons why Toyota, Occidental Petroleum, and Nestle USA food conglomerate left California. Now the second largest firm in California – McKesson Pharmaceuticals is seriously contemplating leaving for Texas – according to a report by the San Francisco Business Times. The issue isn’t whether or not these companies leave; instead it’s the high paying jobs with benefits across all income spectrums being driven out of California. Moreover, we need successful firms to assist tackling the trillions we owe in pensions, bond obligations and infrastructure requirements.

After this recent election where it has become proper to bash Republicans – especially California Republicans – many will postulate there is no difference between Republicans and Democrats. When there is nothing farther from the truth. I’m not speaking about politics, which is essentially the means for winning elections and building coalitions for governance, I’m speaking about actual policies. How do you allocate taxpayer money? Do you want to tackle California’s debt or speak about a surplus instead? Do you believe in abortion, gay marriage, some form of socialism? Do you build a larger navy to confront global problems? Do you believe in fracking?

Those are policy decisions that have wide ramifications for California policymakers and voters. The California Democratic Party currently believes in spending more than it takes in by amounts it will never be able to recover; though incoming Governor Newsom showed variables of fiscal restraint as mayor of San Francisco. Of course there are establishment cronies and swamp-dwellers in both parties; but if you only take environmental policy using Tom Steyer as an example there has never been a more powerful oligarch in recent memory.

The planet and California isn’t better off for the policies Mr. Steyer advocates for and our poverty and homelessness continues being the worst in the nation. These are examples of policy decisions similar to believing there is a budget surplus that have long-term, negative ramifications.

What the surplus doesn’t take into account is California’s real poverty rate that the Census Bureau standard now has at 19% and 43.9% higher than the remainder of the US. Disenchantment and disillusionment with both parties is en vogue, but there is to much at stake in our financial future to allow the Democratic supermajority be let off the hook by continuing to spout the mantra of budget surplus.

Filed Under: Top Stories Tagged With: budget, CalPERS, CalSTRS, Covered California, Gavin Newsom, Medi-Cal

Local Officials Avoid Pension Discussion as They Push New Taxes

June 7, 2018 By Dan Walters 4 Comments

While public and media attention to this week’s primary election focused – understandably so – on contests for governor, U.S. senator and a handful of congressional seats, there were other important issues on Californians’ ballots.

One, which received scant attention at best, was another flurry of local government and school tax and bond proposals.

The California Taxpayers Association counted 98 proposals to raise local taxes directly, or indirectly through issuance of bonds that would require higher property taxes to repay.

The proposed taxes on legal marijuana sales and other retail sales and “parcel taxes” on pieces of real estate were particularly noteworthy for how they were presented to voters.

Most followed the playbook that highly paid strategists peddle to local officials, advising them to promise improvements in popular services, such as police and fire protection and parks, and avoid any mention of the most important factor in deteriorating fiscal circumstances – the soaring cost of public employee pensions.

City, county and school district officials howl constantly, albeit mostly in private, that ever-increasing, mandatory payments to the California Public Employees Retirement System (CalPERS) and the California State Teachers Retirement System (CalSTRS) are driving some entities to the brink of insolvency.

However, those officials are just as consistently unwilling to tell their voters that pension costs are the basic underlying factor in their requests for tax increases.

Why?

Tying tax increases to pensions, rather than popular services, not only would make voters less likely to vote for them but make public employee unions less willing to pony up campaign funds to sell the tax increases to voters. It is, in effect, a conspiracy of silence.

This week’s local tax and bond measures are just a tuneup for what will likely be a much larger batch on the November ballot.

It’s a well-established axiom of California politics that low-turnout elections, such as a non-presidential primary in June, are not as friendly to tax proposals as higher-turnout general elections, such as the one in November. Primaries tend to draw more older white voters who often shun taxes, while general elections have younger and more ethnically diverse electorates more attuned to taxes.

As local officials make plans to place those proposals on the November ballot, a bill making its way through the Legislature could skew local tax politics even more.

Senate Bill 958 would allow one school district, Davis Unified, to exempt its own employees from paying the $620 per year parcel tax that its voters approved two years ago.

The Senate approved SB 958 on a 24-19 vote last month, sending it to the Assembly. It’s being carried by Sen. Bill Dodd, a Napa Democrat whose district includes Davis.

The bill’s rationale is that housing is so expensive in Davis that teachers and other school employees cannot afford to live there, and that exempting them from the parcel tax would, at least in theory, make housing more affordable.

However, if SB 958 becomes law, it would set a dangerous precedent. It doesn’t take much imagination to see local government and school unions throughout the state demanding similar exemptions from new taxes with the threat, explicit or implicit, that they would refuse to finance tax measure campaigns.

The very people who benefit most from additional taxes by receiving higher salaries and/or better fringe benefits thus would be able to avoid paying those taxes themselves.

Where would it end?

Dan Walters is a columnist for CALmatters

Filed Under: Top Stories Tagged With: CalPERS, CalSTRS, pensions, taxes

California Can’t Afford to Play Politics with Pensions

May 1, 2018 By Keith Curry 4 Comments

As a former mayor of the city of Newport Beach, I took very seriously the financial obligations related to our pension liabilities, the impact of pension costs on city services and the ability to keep our commitments to our employees, which is why recent developments in California concern me.

For years, a small group of voices nationwide has called for universities, pension funds, and other groups who hold investments in fossil fuels to abandon those investments. This movement, known as divestment, believes that abstaining from investment in fossil fuels is key to combating climate change. However, the divestment movement has found it difficult to gain traction, in large part because making political statements through public or institutional investments runs counter to the fiduciary responsibility of pension fund managers. Those who depend on pensions expect their fund managers to make decisions based off sound and profitable investment strategy, not political agendas. There is also no real evidence that walking away from fossil fuel stocks does anything to actually help the environment.

Frustrated by their failure to gain ground, divestment advocates have turned to new methods of create momentum. For example, state lawmakers in California have been asked to consider a rash of bills related to pension funds. In 2017, the legislature considered two bills related to this topic. Senate Bill 560, which ultimately died, would have required CalPERS and CalSTRS, pension funds that serve California’s teachers and public employees, to consider climate risk when managing their funds. Assembly Bill 20 forced these pension funds to examine their financial holdings related to the controversial Dakota Access Pipeline. This year, a third bill, Senate Bill 964, would require CalPERS and CalSTRS to report every three years on any investments related to climate change. If these well-intentioned but misguided policies are enacted, the impacts will be felt by cities through rising pension liabilities and a reduction in funds available for basic city services like public safety and parks.

Rebranding their efforts to focus on climate risks, as opposed to directly calling for the abandonment of fossil fuel holdings, divestment advocates are taking new approaches toward the same goal. But while some might view these bills as well-intentioned measures to help the environment, the reality is quite different.

For starters, there is no evidence that these measures do anything to help the environment or combat climate change. Even Assembly Bill 20, with its targeted focus on a single pipeline, has had no impacts on the Dakota Access Pipeline’s investments or implementation. Rather, the value of passing such a measure lies mostly in its symbolism, a fact acknowledged by Bill McKibben, an environmental activist helping to drive the divestment agenda.

In practice, “climate risk” measures open the door for playing politics with retirement funds. This is especially dangerous for large funds tasked with protecting the future of Californians. Consider, for example, that the state’s public employees fund, CalPERS, manages the largest public pension fund in the United States, serving nearly 2 million people and holding around $300 billion in assets. CalSTRS, which serves education employees, is the world’s largest educator-only pension fund and the second largest pension fund in the U.S., managing a portfolio of more than $200 billion. Recent figures show that more than 200,000 retirees currently depend on CalSTRS for their pensions. Divestment from tobacco related stocks has already cost the CalPERS system more than $3 billion according to recent studies. We simply cannot afford more of this waste.

There is clearly an incredible amount at stake when it comes to managing these funds and others like them in California, with job number one being safeguarding the money that these employees worked so hard to earn. Both CalPERS and CalSTRS, California’s two largest pension funds, explicitly require fund managers to adhere to their fiduciary responsibilities. Misguided legislation requiring pension managers to follow political agendas when managing money only distracts from that duty, putting public funds and retirement nest eggs at great risk. Now more than ever, pension managers must focus on achieving returns that address the looming unfunded pension crisis, not on playing politics.

The truth is that divestment and related ideas like climate risk have always lived on shaky ground. Instead of walking away from investments in fossil fuels and losing a seat at the table, isn’t the better approach to affect change through active engagement? Instead of requiring pension fund managers to mitigate climate risks, shouldn’t we allow them to fulfill their fiduciary duty and leave climate discussions to policymakers? Hopefully retirees and their elected officials are paying attention to this dangerous rebrand of the divestment movement. The consequences are higher unfunded pension liabilities and the crowding out of municipal services. With today’s turbulent financial markets, it is more important than ever that we protect the hard-earned money of Californians.

Keith Curry is a former Mayor of Newport Beach and former financial advisor to state and local governments.

Filed Under: Top Stories Tagged With: CalPERS, CalSTRS, Keith Curry, pensions

Dubious Investments Further Imperil California Pension Plan Already in Crisis

January 4, 2018 By Jeff Patch 5 Comments

The California Public Employee Retirement System, known as CalPERS, is in crisis. And it sure looks like things are going to get a whole lot worse before they can get a whole lot better.

The system already has a $153 billion unfunded liability, one of the largest shortfalls of any state, and it only has funds to cover 68 percent of promised benefits into the future. And because CalPERS is already cash negative, paying out $5 billion more in benefits to retirees each year than it takes in, there aren’t many scenarios whereby the system would be able to make good on those promises absent outside intervention (read: taxpayer bailout).

Lawmakers and the fund’s board should be considering reforms to improve the system, but California voters and taxpayers faced another setback recently. Overseers of the pension plan — the nation’s largest — passed a funding plan earlier this year that projects shortfalls over the next decade but assumes rosy investment returns in coming decades to make up the difference. Given the high market valuations today, that assumption seems dubious.

When the CalPERS investment committee reallocated its investments recently, it assumed a 7 percent annualized rate of return. While CalPERS has enjoyed some good years — for example, its 2017 return may exceed 11 percent — that’s not the norm. The fund has averaged a 4.6 percent rate over the past decade, and its 2016 rate was an abysmal 0.6 percent.

CalPERS’ strategy — and to a large extent that of the state in general — seems crafted first and foremost to advance the interest of public sector labor unions. The high compensation for state government workers and the state’s munificent retirement benefits make it difficult for local government officials to find the money necessary to meet their obligations. Rising contribution rates for local governments mean that municipalities and schools have less money to educate children, build roads or provide other essential government functions.

CalPERS’s school district contribution rates to the pension plan are projected to skyrocket in the near future. The rates have risen to 15.5 percent from 11.8 percent in the 2015-2016 fiscal year, and are scheduled to reach 22.7 percent in 2020. School districts have little power to fight the increases, which are mandated at the state level. The only way to reduce pension contributions is to cut staff. Some layoffs may make sense for districts facing declining enrollment, but they can also harm educational outcomes.

Fund managers should be laser-focused on increasing investment returns for its beneficiaries, which would lessen the fund’s burden on taxpayers. But its board is more interested in pursuing a political agenda. For the majority of California taxpayers who hold a portion of their retirement assets in the stock market, CalPERS’ activism means that some of their money will be used to support a political agenda that hurts their investment returns.

CalPERS has played an increasing role in politicizing annual shareholder meetings in recent years. These elections are on the horizon—a majority of U.S. public companies hold the mandated meetings between March and July—and CalPERS is already planning to force votes on proposals on environmental and social issues.

Traditionally, these proxy votes have been about improving corporate governance with one goal in mind: improving shareholders’ returns. But CalPERS and other activist investors have aggressively pushed proposals irrelevant to companies’ missions that could have a harmful impact on shareholder value.

CalPERS has prioritized relatively poor-performing environmental, social and governance (ESG) investments at the expense of other options more likely to optimize beneficiary returns. As a recent study by the American Council for Capital Formation shows, four of CalPERS’ nine worst performing funds were ESG-focused.

CalPERS responded to the criticism by noting that the plan’s private equity portfolio, which includes the funds, has performed well overall. But CalPERS would serve its beneficiaries—and taxpayers—better if it focused on investment returns and not politics.

Making investment decisions based on social issues has real consequences. Last year CalPERS’ board expanded its ban on investing in companies that produce tobacco products, against recommendations by its professional staff. In an analysis of the cost of divestment produced for CalPERS, Wilshire Consulting placed the system’s total foregone investment gains at more than $3.6 billion.

CalPERS is facing a serious, long-term crisis that could cripple school districts and local governments while forcing tax increases to pay for the pension system. Getting the fund out of politics won’t alone fix the system’s fiscal woes. But it would be a good first step.

This article was originally published by RealClearPolitics

Filed Under: Top Stories Tagged With: CalPERS, CalSTRS, pensions, Unfunded Liabilities

California pension funds likely to face new pressure to divest from fossil-fuel companies

January 2, 2018 By Chris Reed 9 Comments

New York Gov. Andrew Cuomo’s call for his state’s biggest government pension fund to stop new investments in fossil-fuel companies and phase out existing investments is likely to lead to renewed calls for the Golden State’s two massive pension funds – the California Public Employees’ Retirement System and the California State Teachers’ Retirement System – to do the same.

The Common Fund – New York’s pension fund for state and local public sector employees – has $200 billion in holdings. Cuomo, a Democrat who is expected to run for president in 2020, said it was time to craft a “de-carbonization roadmap” for the fund, which “remains heavily invested in the energy economy of the past.”

New York City Comptroller Scott Stinger agreed with Cuomo and called for changes in the investment policies of the city’s five pension funds, with holdings of about $190 billion.

The announcements were hailed on social media as a reflection of the mission statement of the 2015 Paris Accord outlining international efforts to address global warming.

It’s possible Brown could use his State of the State speech later this month to reveal his call for CalPERS and CalSTRS climate-change divestment. The pension giants have already been forced to end investments in coal companies because of a 2015 law signed by the governor, selling off shares worth less than $250 million, a tiny fraction of their overall portfolios.

But selling off stakes in energy companies would be a much more impactful event. Giant firms like ExxonMobil are among the most common holdings of pension funds around the world.

Some unions worry divestment will hurt CalPERS finances

And while the California Democratic Party has been largely unified behind Brown’s and the state Legislature’s efforts dating back to 2006 to have California lead the fight against global warming, such unanimity is unlikely should Brown follow Cuomo’s lead because some public employee unions are worried about divestment damaging the finances of CalPERS and CalSTRS.

As of July, CalPERS had $323 billion in assets and said it was 68 percent funded – meaning it had about $150 billion in unfunded liabilities. As of March, CalSTRS had $202 billion in assets and said it was 64 percent funded, leaving unfunded liabilities of about $100 billion.

CalPERS’ steady increase in rates it charges local agencies to provide pensions and the heavy costs facing school districts because of the Legislature’s 2014 CalSTRS’ bailout have taken a heavy toll on government budgets.

Corona Police Lt. Jim Auck, treasurer of the Corona Police Officers Association, has testified to the CalPERS board on several occasions, imploring members to focus on making money with investments, not making political statements.

According to a July account in the Sacramento Bee, Auck said public safety is hurt when police departments must spend ever-more money on pensions.

“The CalPERS board has a fiduciary responsibility to the membership to deliver the best returns possible,” Auck testified. “Whatever is delivering the return they need, that’s where they need to put our money.”

The International Union of Operating Engineers, which represents 12,000 state maintenance workers, has taken the same position, according to the Bee.

In New York, Gov. Cuomo also is not assured of success. The sole trustee of the Common Fund is State Comptroller Thomas P. DiNapoli. While he agreed to work with Cuomo in establishing a committee to consider possible changes in its investment strategies, his statement pointedly emphasized that there were no present plans to change the fund’s approach to energy stocks.

While DiNapoli cited his support for reducing global warming and the Paris Accord, his statement concluded with a sentence emphasizing his priorities: “I will continue to manage the pension fund in the long-term best interests of our members, retirees and the state’s taxpayers.”

Filed Under: Top Stories Tagged With: Anthony Cuomo, CalPERS, CalSTRS, Climate change, Global Warming, Jerry Brown, pensions

California Dems Push Pension Funds to Divest from Guns, Oil Pipeline

November 10, 2017 By Steven Greenhut 3 Comments

SACRAMENTO – California’s two major pension funds, the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS), control more than $500 billion in total assets, making them two of Wall Street’s most influential investors. They also are government entities, and some California leaders want to use their investment muscle to achieve public-policy outcomes.

This often comes in the form of divestment, by which the funds are encouraged – or even required – to sell their assets in industries that are viewed negatively by the people who push these efforts. These efforts tend to work against the goals of the funds’ professional investment staff, which are charged with getting high investment returns to fund pensions for the systems’ retirees. Both funds have a fiduciary responsibility to maximize their return on taxpayer dollars.

Yet estimates from a consulting firm suggest that CalPERS has lost approximately $8 billion in returns because of previous efforts to divest from coal-related and tobacco industries. That’s become a particularly contentious issue as funding levels have fallen to 68 percent for CalPERS and 64 percent for CalSTRS. That means they have only around two-thirds of the assets needed to make good on all the current and future pension promises made to government retirees.

Despite the troubling numbers, there’s a new push for divestment from some politicians. Following the October massacre in Las Vegas, by which a gunman murdered 59 people at a country music concert, state Treasurer John Chiang has called for the teachers’ fund to sell its assets in weapons firms and sporting-goods companies that sell any guns that are illegal in California.

“Neither taxpayer funds nor the pension contributions of any of the teachers we represent, including the three California teachers slain in Las Vegas should be invested in the purveyors of military-style assault weapons,” said Chiang, a 2018 candidate for governor and member of both pension boards. Chiang also told the Sacramento Bee that he plans on making a similar request to the CalPERS board.

The newspaper also noted that both funds “this year have faced calls to divest from companies that do business with the controversial Dakota Access Pipeline,” which would transport oil underground from North Dakota oilfields to Illinois. It has prompted protests from a variety of environmental and Native American activists.

Critics of these proposals say they are largely symbolic and would do little to influence gun sales or the pipelines. Divestment from these relatively small industries wouldn’t have much impact on the massive funds’ financial returns, either.

On Oct. 30, 12 members of California’s Democratic congressional delegation sent a letter to CalPERS chief executive officer Marcie Frost urging the pension fund to divest from a fund that has acquired a hotel owned by Donald Trump’s organization. This move is more directly political than many divestment efforts, which tend to focus on the social implications of investing in the pipeline, weapons manufacturers, coal-related industries and tobacco companies.

Divestment advocates sometimes argue that these controversial products may be poor long-term investments. For instance, the Public Divestiture of Thermal Coal Companies Act of 2015 and similar efforts by the state insurance commissioner were based in part on the notion that these coal-related companies may face diminishing values as the world shifts away from carbon-based fuels – a point rebutted by those who note that the current price of the stocks already reflects that risk.

But the Trump-related divestment call, led by U.S. Rep. Ted Lieu of Torrance, is designed to target the president. The members of Congress expressed their disappointment that CalPERS “has not divested its interest” in that fund “nor has taken any actions to ensure that its fees are not being transferred to President Trump,” according to their letter. They criticized CalPERS for taking a “wait-and-see” approach toward the matter.

These members of Congress claim that this CalPERS investment could be in violation of the Domestic Emoluments Clause of the U.S. Constitution, which states that “no Person holding any Office of Profit or Trust under them, shall, without the Consent of the Congress, accept of any present, Emolument, Office, or Title, of any kind whatever, from any King, Prince, or foreign State.” This would be an unusual interpretation of an arcane clause.

Meanwhile, the pension funds have been expanding other divestment and socially motivated investment efforts. Last December, the CalPERS investment staff “recommended that the board remove its 16-year ban on tobacco investments in light of an increasing demand to improve investment returns and pay benefits,” according to a Reuters report. But instead of removing the ban, the board “voted to remain divested and to expand the ban to externally managed portfolios and affiliated funds.”

And last year CalPERS adopted a five year Environmental, Social and Governance plan that focuses on socially responsible investing. The fund has long used its financial clout to push companies it invests in to promote, for instance, board diversity and other social goals.

Whatever their chances for approval, the latest efforts are not out of the ordinary. But they will rekindle the long-running debate between political and financial goals, and whether the former imperils the latter given both funds’ large unfunded liabilities.

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

This article was originally published by CalWatchdog.com

Filed Under: Top Stories Tagged With: CalPERS, CalSTRS, CalWatchdog, guns

CA Teachers Pension Fund Weighs Divestment from Gun Retailers

November 3, 2017 By AWR Hawkins 10 Comments

The California State Teachers’ Retirement System (CalSTRS) is considering a divestment from any retailer that sells guns or ammunition, in the wake of the Oct. 1 mass shooting in Las Vegas.

California State Treasurer John Chiang believes the divestment should focus on retailers that sell “banned military-style assault weapons.”

According to the San Diego Union-Tribune, the case for divestment was pressed by Jason Irvine, a Reno, Nevada, resident whose sister, Jennifer Topaz Irvine, was shot and killed in the Vegas attack. He spoke of having to identify his sister’s body after she was shot and said, “I saw with my own eyes and felt with my hands the carnage these weapons inflict.”

Although weapons do not inflict damage — rather, people who misuse weapons do — Irvine’s words found their mark and CalSTRS investment committee chairman Harry Keiley voiced support for looking into divestment. Kieley said, “This is an issue that we alone cannot solve. At the same time, I don’t think we should sit by idly.”

State Treasurer Chiang approached divestment from the angle of minimizing investments in companies “who business efforts are a risk to public health and safety.” He said, “It would be difficult to argue that battlefield assault weapons and aftermarket accessories designed to rain down bullets don’t fall into this category.”

CalSTRS voted to divest of specific firearm and ammunition manufacturers following the December 14, 2012, attack on gun-free Sandy Hook Elementary. On April 3, 2015, Breitbart News reported that some teachers were outraged to find that the pension was still invested in Bushmaster Firearms over two years after the attack. (Bushmaster is the make of gun Adam Lanza stole and used to kill innocents at the school.)

Pension managers told the angry teachers that divestment is a process that could take years in some cases, and it was still ongoing in 2015.

Now Chiang and others want the fund to undertake divestment “in retail companies that sell the weapons and ammunition.”

AWR Hawkins is the Second Amendment columnist for Breitbart News and host of Bullets with AWR Hawkins, a Breitbart News podcast. He is also the political analyst for Armed American Radio. Follow him on Twitter: @AWRHawkins. Reach him directly at awrhawkins@breitbart.com.

This article was originally published by Breitbart.com/California

Filed Under: Top Stories Tagged With: CalSTRS, guns, John Chiang

Rising California Pensions Costs Major Concern for Credit Rating Agencies

Low birth rate hurts enrollment

CalSTRS needs booming market

Despite Budget Crisis, Oakland Teachers Demand 12 Percent Raise

Schools kept open despite huge drop in enrollment

District hoping for emergency state loan

California Doesn’t Have a Budget Surplus

Local Officials Avoid Pension Discussion as They Push New Taxes

California Can’t Afford to Play Politics with Pensions

Dubious Investments Further Imperil California Pension Plan Already in Crisis

California pension funds likely to face new pressure to divest from fossil-fuel companies

Some unions worry divestment will hurt CalPERS finances

California Dems Push Pension Funds to Divest from Guns, Oil Pipeline

CA Teachers Pension Fund Weighs Divestment from Gun Retailers

Recent Posts

Connect With CPR On Twitter