CA Dems Want State’s Overdrawn Pension Systems to Dump Fossil-Fuel Stocks

California’s two mammoth public-pension funds — the California Public Employees Retirement System and the California State Teachers’ Retirement System — are short a shocking $225 billion that they’re going to need to pay for the retirements of government workers. But what is it about the two pension funds that worries the state’s Democratic Party? Their fossil-fuel investments.

Delegates to the state’s annual Democratic Party convention voted over Memorial Day weekend in favor of a resolution urging the funds to dump oil, natural gas, and coal stocks. The vote follows the introduction earlier this year of state legislation that would require the pension funds to sell all coal-related stocks and study the implications of dropping oil and natural gas stocks. With the resolution, local Democrats jumped on the divestment bandwagon, inspired by radical environmentalist Bill McKibben, which has so far persuaded the endowment funds of about two dozen universities to sell shares in fossil-fuel companies. Yet if CalPERS and CalSTRS’s past social-investing records are any indication, the real losers from divestment won’t be the energy companies, but California taxpayers.

“I’ve been involved in five divestments for our fund,” CalSTRS chief investment officer Chris Ailman told his board earlier this year. “All five of them we’ve lost money, and all five of them have not brought about social change.”

For several decades, California’s pension funds have been subjected to a dizzying array of social-investment prerogatives. A 2011 Mercer Consulting study found that CalPERS investment officials had to follow 111 different investment priorities relating to the environment, social conditions, and corporate governance. Many of these directives have proven calamitous to the two funds’ bottom lines. Eight years after CalSTRS and CalPERS divested their portfolios of tobacco stocks in 2000, a study found that the move cost CalSTRS $1 billion and CalPERS about $750 million in foregone profits. CalPERS also ditched investments in developing countries such as Thailand and India, because board members objected to labor standards in these countries. A 2007 report found that avoiding investments in developing counties cost CalPERS about $400 million.

Via: California Political Review

Continue Reading....

$340 Billion in CA Debts

A high-profile new report showed California still faces massive liabilities extending far into the future. The study, released by the nonpartisan Legislative Analyst’s Office, tallied over $340 billion in debts, deferred payment and other budgetary burdens “that will affect the state’s financial health in the future.”

According to the report, “Addressing California’s Key Liabilities,” there was some good news mixed in with the bad. The LAO was relatively sanguine toward a substantial portion of California’s long-brewing public pensions crisis. The report’s Executive Summary lauded “recent actions taken by the California Public Employees’ Retirement System (CalPERS) board … to address the unfunded liability for state employee pension benefits in about 30 years.”

Given the legal controversy surrounding CalPERS’ role in city bankruptcies, however, the LAO’s praise may not go far. Litigation concerning the bankruptcy of Stockton, for instance, has pulled CalPERS back into potential liability. “Even though the city decided not to try to cut its CalPERS payments,” the Sacramento Bee reported, “Judge Christopher Klein said he could rule that the pension fund could be treated like other creditors.”

That’s significant because a ruling along those lines would affect CalPERS statewide. CalPERS is locked in a closely watched mediation process with the city of San Bernardino, which hopes to avoid millions in back payments to CalPERS as a consequence of declaring bankruptcy.

CalPERS, however, isn’t the only pension system at the center of the LAO report. There’s also CalSTRS, the California State Teachers’ Retirement System. There, the LAO fingers “$200 billion in liabilities” that “merit further legislative attention.”

In his revised May budget, Brown has a plan to address the shortfall. It’s already drawing criticism. He aims to make a down payment on CalSTRS’ $74 billion shortfall — followed by $5 billion in increased funds every year for 30 years, once it’s fully phased in after seven years of stepped-up payments. Notably, $3.7 billion a year will be expected to come from school districts themselves — not a popular policy at the local level.

Via: California Political Review

Continue Reading....